Is All Credit Card Debt Bad?:The Allure of Convenience Checks

Hello everyone.
In my Sunday, July 8th post, I wrote about how to manage debt by paying the minimum for debt service and placing your money where it can earn higher returns. This only works when the interest rates on your debt are low.

On Saturday, I received some convenience checks in the mail. When I get these, I usually tear them up because I don't like carrying a credit card balance. But because I have pretty good credit (above 700), I often get offers for the ability to write checks to myself at rates like .99% until May 2008 or 4.99% until the balance is paid off. I had been offered an APR (annual percentage rate) of 4.99% before, but Saturday was the first time that I had gotten one as low as .99%. I knew that I had to take advantage of this offer.

Normally I would not advocate borrowing money to buy stocks. Buying stocks on margin is something that I would only recommend for experienced investment professionals. But using a credit card convenience check to buy stocks when you're getting an incredible rate is something that I think can be profitable if planned carefully.

Today, I wrote myself a check for $3,000. I will use $1,250 of that to pay for my LSAT prep course (I will pay off this balance at the end of the month). The remaining $1,750 will be used to purchase 100 shares of Ceragon Networks (CRNT). Ceragon Networks is a telecommunications company that provides Wi-Max, and wireless cellular infrastructure to cellular operators. Given the growth of broadband and cellular technology in emerging markets such as India, China, Brazil, and Mexico - many of which are the markets that Ceragon Networks operates in - Ceragon is posied to profit nicely.

I think that CRNT will be more than .99% higher 9 months from now, which is when I would start paying the regular APR on the $3,000 that I'm borrowing. CRNT has a market cap of approximatey $450 million, is growing revenues at 57%, its quarterly earnings recently more than tripled, and it trades at $15.93 right now. Couple these factors with the typical end of the year tech rally, and you have a recipe for tons of upside price action.

Of course this is an oversimplification, but hopefully it provides a starting point for more research on CRNT. The bottom line though is that I can afford to pay back the $3,000 I'm borrowing if anything goes awry with this trade, the APR on the money is ridiculously low, and CRNT has major growth potential. I don't recommend others doing this without knowing their risk tolerance level. I just wanted to put the idea out there - using low-interest rate money to invest is a much better alternative to using that money for a vacation, designer jeans, or a flat-screen t.v. Thanks for reading and until next time...