Fantastic Plastic For 2009!
If you always pay off your credit card balance in full, by switching card you could earn enough cash to pay for an iPod or new games console by this time next year. Check out my top picks and find out how.
January is a great time to take a look at your money and work out the savings you can make. And let's face it; in the current economic climate any money we can save is great! But if you're disciplined with your finances, a surprising way to make money is simply by changing the method by which you spend it.
For example, most of tend to use our debit cards to pay for purchases when out and about, and a good number of us will choose to use a credit card for any online or larger purchases, to benefit from the protection offered by Section 75 of the Consumer Credit Act. But if you always pay off your credit card bill in full, each month, there are a couple of easy ways you could be rewarded for your spending, simply by changing the bit of plastic you use.
Cashback credit card
Firstly, the easiest way you could earn good old-fashioned money on every pound you spend is with a cashback credit card.
As you can probably guess, they do "exactly what they say on the tin" and pay a percentage of what you spend back to you, as cash.
For example, Ben spends £1,000 each month on his debit card. If he were to move that spending to the current table-topper, the American Express Platinum Cashback credit card, he could earn 5% of his spend back as cashback for the first three months (up to £4,000), and up to 1.5% thereafter.
If he were then to stick to his normal spending pattern over the next 12 months he could earn himself a whopping £200+ in cashback - meaning that come this time next year, Ben could treat himself to an iPod Touch, a Nintendo Wii or a Tom Tom SatNav, and all for free!
Not bad for essentially continuing what he's doing anyway. Plus, his purchases would benefit from 90 days Purchase Protection benefit, Refund Protection benefit and an Online Fraud Guarantee.
What's more, if he were to plan ahead so that any big purchases he's expecting to make during the year (such as on a holiday/new computer etc) were made before the third month was up, he'd get 5% cashback on this, too.
Other cashback credit cards to consider include the Egg Money MasterCard (paying 1% cashback) and the Smile Classic Visa (paying 0.5% cashback). And the Abbey credit card offers 3% cashback on purchases from supermarkets and petrol stations for the first six months (up to £12.50/month).
0% Cards for New Purchases
A slightly more complicated but potentially better way to earn money is by using a 0% credit card for new purchases.
For example, if Ben were to move his spending to the Marks & Spencer (M&S) MasterCard (which offers 0% for 10 months) he could pay off the minimum amount each month and stash the rest into a savings account paying a decent rate of interest.
After the ten months are up, he simply needs to pay off the card with his savings and the interest earned is his. So if he were to save his cash in the ING savings account, currently paying 5%AER (inc. a 12 month, 2.17% bonus) for example, he could potentially have earned around £227, before tax -- again enough to pay for that snazzy MP3 player or games console.
What's more, all spending on the M&S card additionally earns reward points (one point/£1 spent in-store and one point/£2 spent elsewhere) which are converted into M&S shopping vouchers and sent out, each quarter. So Ben could also potentially have £50+ of M&S vouchers to spend!
Alternative cards include the Halifax All in One MasterCard, offering 0% on new purchases for nine months, or the Virgin Money Credit Card, offering 0% for six months.
Points to note
It's worth mentioning that using a 0% card for new purchases and stashing the money spent into a savings account was a far more lucrative option when interest rates were higher. You also need to be scrupulous about saving the money you spend and paying off the card in full within its 0% period (and paying the minimum charge each month) or any money earned will be eaten up in huge interest charges.
And after the recent Icelandic banking troubles Ben may also prefer to keep his money closer to home, in which case Market Harborough BS is offering 4.15%AER with its onthedot Easy Access account.
But in any case, any money earned would be a bonus as he wasn't earning it before!
So there are a couple of ideas to show how if you're careful with your money, switching to the right credit card can be a lucrative option. But as always, if you've any doubts about how disciplined you are, steer clear - a debit card is much safer!
Compare credit cards at Fool.co.uk