Credit cards have a lot of advantages such as giving better protection than cash or checks on purchases, but you’ll be hard pressed to find a financial advisor that will tell you that there are good reasons to rack up credit card debt. One thing I have learned about personal finances is that every person’s situation is different and while it is possible to make generalizations in many areas of personal finance, there always seems to be exceptions to the rules. It was while talking with another personal finance friend who made the claim that “there is not one good reason that people should rack up credit card debt” that I bet him I could come up with five good reasons.
Here are the five that I came up within the hour we ate dinner, and while they can obviously be debated, I think they show that there can be exceptions to the rule. So without further adieu, here are my 5 good reason to rack up credit card debt:
Number 5: To Build A Business: This may be the weakest of the five I put forward because there are probably other alternatives to starting a business using credit cards for most people, but I’m sure there are a few that could only go forward with their idea by financing it with their credit card. Depending on the type of credit history they had and the rate on their credit cards, it could even be a cheaper alternative to a small business loan.
Number 4: You’re Going To Die Soon: While there certainly are some ethical questions about this one, my guess is that most people would at least consider racking up a large amount of credit card debt if they knew they only had a few months to live and not the money to do some of the things they wanted to do. Visiting friends and family one last time to say a last goodbye and things of that nature. You could ease the ethical questions to some degree if you also took out credit card debt insurance while doing this meaning that the insurance would pay any outstanding debt when you died.
Number 3: Paying For Huge Medical Expenses: If you or one of your loved ones was unlucky enough to have a serious medical problem, chances are that even with basic medical insurance, you would need to pay a large amount out of your own pocket (and certainly would if you didn’t have any insurance or your insurance didn’t cover that particular illness). I would bet that any parent would be more than willing to rack up large credit card debts in order to try and help their child survive any such ordeal.
Number 2: Credit Card Arbitrage: Credit card arbitrage is taking advantage of low introductory credit card rates to use the money to invest in other areas that are paying higher rates. While doing so can be quite risky, there are many that do it successfully. You need to be well organized, willing to read the fine print on credit card offers and make sure you’re never late on a payment for it to work (just to name a few), but you could turn $50,000 of the credit card’s money into an extra $2500 in your own pocket if you can get a 5% better return over any costs you may have.
Number 1: Avoid Going To Iraq: I know someone that purposely took on more than $25,000 in credit card debt for the sole purpose of getting out of going to Iraq. Military personnel with a large debt load will often be denied security clearances needed to be deployed in Iraq because the debt is viewed as a security risk (if you have a lot of debt, you would likely be more willing to take money to give away secrets). This tactic doesn’t come without costs. He has likely ruined any long term military career and he has a pile of debt that will need to be repaid. He says it’s worth it because he is still close to his family and out of danger of any road side bombs.
The above examples are merely to illustrate that there could be circumstances when a general personal finance rule may not apply. While many like to believe that personal finance is strictly a black and white, right and wrong choice on the best way to use your money, the fact is that we all have different circumstances affecting our lives and need to also take those into consideration. That doesn’t give anyone a pass to not take a critical look on how they are spending their money, but does mean you should listen to financial advice and then make your own decisions based on what is best for you.