A friend of mine is living on Credit Card Cash Advances?

Question

A good friend of mine got tired of working and decided to see how long he could live on credit cards. He was making about $30K a year working as a cook at a restaurant, and applied for dozens of credit cards. He was accepted for most of them and they were more than happy to give him lots of credit.

He also got lots of credit card convenience checks in the mail and before long he had over $100K in his bank account. He uses the money in one account to pay off the minimum payment in other. He has complex Excel spreadsheets to keep track of his various credit cards. His goal is to get access to $200K.

He lives on about $25K a year, so he can live off his credit cards for a very long time. Once he runs out of credit though it will be a big problem. He says that is years in the future and will worry about that then. He is either a genius or an idiot, your choice?

Answer 1

First off, I do not believe someone who makes $30k would be given $100k in credit from the banks. It is even less believable that he is getting $100k in available cash. If he is, then there is fraud lurking in the background. The scheme you are describing is something Ben Stein started, but cannot do anymore since the banks wised up and charge outrageous fees for each cash advance and convenience check dollar.

If he is doing what I think he is doing and there is no fraud involved, then he is setting himself up to stiff his lenders. Kudos if he does not need credit or have plans to get an on the books job. It sounds like he doesn't since he is young, single, works as a kitchen cook and lives in the projects or at home with his parents. After he defaults, the lenders will come after him with a vengeance. He is enforcement proof since, in all likelihood, he has no assets. His credit will never clear up with judgments on his record. He will never be able to buy a condo, car or hold a job other than in some cruddy kitchen that pays cash.

So, I think he is not a genius, but tries to think. I also think he is an idiot because if he was smart, he would use that money to make money. At best, he is still a mope.

Answer 2

Sounds like a complete idiot to me.

This is all going to catch up to him big time. He may be living off of $25K/year, but it's probably costing him over $50K/year in interest charges. Making minimum payments on credit cards is a sure fire way to pay the credit cards huge amounts of money. They purposely keep the minimum payments low enough so that you spend almost all of your money on interest, while paying almost nothing toward your principal.

Your friend is eventually going to realize that he's in way over his head and he'll declare bankruptcy, then his credit will be ruined and he'll have nothing left for his retirement. He'll end up slaving away at a terrible job when he's 70 years old, just so that he could "live it up" while he was 30.

Answer 3

I guess you could say he is a little bit of both....a genius and an idiot. He has a pretty smart system, NOW. But before too long, it's going to catch up to him and bite him in the butt. Paying the minimum payment won't get you anywhere. And in turn, he is basically going to be screwing up his credit big time. Granted, he is paying the minimum but that doesn't matter. If he has all those credit cards maxed out, that looks bad on your credit. I would suggest to him to stop doing it before it gets too bad that he can't fix it.

Answer 4

I would say he likes to live on the 'edge'. This is a very dangerous way to live, financially speaking. He is way over his head in cash advance debt - and it is usually higher interest rate than regular credit card interest rates. So, I would say that unless he is able to pay it off, he will go bankrupt pretty soon.

Answer 5

I suggest he buys a house now in a tax haven and moves there before it catches up with him !
They need plenty of cooks in these tax haven places, so why not help him open a restaurant and hotel in Andorra ?

Answer 6

IDIOT--is he planning on being homeless when he is older?