When is debt good?
Right now, we “owe” over £7,250 on credit cards, but I don’t consider us to be in debt. We could give it back at any time we wanted to. We’re using that debt to make money.
In 2014 and 2015, we made over £400 and £450 in interest, and we didn’t have as much “debt” to use as we do now. I’m hoping for this year to bring us much more.
It’s true. There are three ways that we earn money from our credit cards. It’s a long post, but do read on to find out more, and whether you can do it too.
Over the last few years, I’ve been surprised how few people actually understand credit cards.
One of my work colleagues genuinely thought (and still does) that using credit cards makes items more expensive at the point of sale. He wouldn’t hear otherwise. This isn’t to say he was referring to the interest that would be charged if the purchase wasn’t paid off in full by the statement date; he meant, that buying an armchair with a credit card would cost, say, £150 instead of £100 in cash or with a debit card. Everywhere.
Understand how credit cards work
Ok – let me point out, this just isn’t true. Small vendors can impose a surcharge (although they’re not supposed to) on credit cards because of the fees that they are charged by credit card companies for processing the sale, but those are individual merchants’ decisions. Most shops don’t pass on the merchant fees to customers. In fact, using credit cards has helped me to not only save money, but to make money.
|Should you be afraid of credit cards?|
I realise that this isn’t for everyone. If you have revolving credit card debt already, it’s best to focus on getting rid of it. Never let it accumulate.
If you’ve been bitten by credit card debt in the past, well, it may be your reaction to say, “never again!” and refuse to touch another card. I don’t blame you. That’s my mother’s story, in fact. I told her about how I make money from credit cards, but she had only just come out from under a mountain of genuine consumer debt. Because of her bad experience, I wouldn’t recommend my methods to her.
The reason is, you can only do what we do if you have absolute control over your spending. If it tends to get away from you at times, or has done recently, then it’s best to avoid credit and focus on readjusting your internal money scripts and habits.
As for me, I do have a funny story about getting caught out by a credit card – but it’s not what you think. More on that one later!
There are three ways we earn from our cards.
Back in 2014, when Lord Balders and I were frantically saving for a house deposit, I started to read about stoozing. We had a bank account paying a good rate of interest, but not enough cash to fill it up. I read about interest rate arbitrage and thought, “we could do that!” and from there on, we started doing exactly what we are doing now: building up debt.
Are alarm bells ringing? Well, turn them off. It’s simple: we open a credit card with a 0% interest introductory offer on purchases. The longer this offer period, the better. Then we use that credit card for every purchase we need to make.
The cash we would have otherwise spent stays in the bank, earning (in our case 5% AER interest). When the credit card’s introductory period is close to its end, we can either pay it off in full (as we did before applying for a mortgage last year) or look for a balance transfer card with another 0% offer to move it over to.
The most important thing here – the cash stays in the bank, earning interest.
Can you do this? Only if you are in complete control of your spending already, and are committed to understanding the terms and conditions of your own credit card. Can you diarise the end-date of your 0% offer, and do you have an instant-access savings account to keep your money in?
It’s important that you’re able to access the money quickly, as, remember, it’s not your money! You may have to pay it all back earlier than you planned if you make a mistake and go over your credit limit… and of course, there are other unforeseen circumstances where you might want to pay it back early and be entirely debt free.
If you find yourself buying unnecessary items just because you’ve got a credit card, this is something to stay far away from. I rank it at 5 on the faff scale because if you get it wrong, you could cause yourself a lot of trouble.
Last month, I was faced with a large car insurance premium. I could pay it, but I didn’t want to see so much money leave my savings – after all, I’m earning interest on that! After some research I applied for a new 0% balance transfer card with no fee (best bit!). What’s important here, though, is that I applied for it through TopCashback, and that they gave me £21 for taking out that credit card.
Why would anyone pay me for opening a credit card? Well, the banks and financial institutions pay commissions for leads, and cashback companies give you (at least some of) this commission back. I always look for cashback deals before opening a new bank account or taking out a credit card. If you’re going to open a credit card, look around to see if there are any cashback offers for the one you want – you might as well make some money from it!
This is so easy, it’s barely registering a 2 on the faff scale.
Back to the car insurance saga – I initially put the full cost of the car insurance on my Tesco Clubcard credit card. This was a card that I had been stoozing with back when I first started, but the introductory offer has long since expired. If I use it now, I have to pay it all back in full every month. Still, I used it to make this large purchase because I knew I would get hundreds of Clubcard points for it. Tesco Bank also does a friend referral scheme where you can get extra points – email me for more info on this.
Don’t overlook the value of points schemes on credit cards – they may often not be much, but they’re better than the fat lot of nothing you’d usually get from your debit card! I don’t have plans to travel, so don’t have much use for Avios, but when I do need to use that card, at least I’m collecting something for it that may be useful in the future.
Also, what about cashback credit cards? We collect 0.5% of our purchases by using one of our cards. Not the most we could get, but as that card is primarily for stoozing, it’s a welcome bonus. Again, being aware of credit card loyalty schemes is so easy that it’s barely a 2 on the faff scale.
Don’t be loyal!
In all, it pays to be a credit card tart. Get a better card – you won’t hurt its feelings! Cardy McCardface in your wallet there isn’t your friend, so you don’t have to keep him around if he’s not doing anything for you. On the other hand, he’s not your enemy. He doesn’t make you go over your limit or pay late. You just need to understand credit cards.
No, stoozing is not for everyone. Actually, credit cards aren’t for everyone, let’s face it – but if you are financially responsible, they’re for you, and they can be a lot more useful than you might have realised. Any questions? Have you tried stoozing, or is it more trouble to you than it sounds? Let me know!
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