Read how to make hundreds each year with your cards, including how to borrow to make money, and how to earn interest on money you've already spent!
There are several ways to make money from credit cards, not just the infamous 'stoozing' technique. Once you've paid off all your card debts (and only then) you should start using them to make money. Here are five ways to do so:
1. Earn interest on money you've already spent!
When you make a purchase using a credit card, you can borrow free of interest for 45 to 59 days, depending on the card. By choosing to make more purchases with your credit card, your money stays in your current account for longer, earning more interest. So you're earning interest on money you've already spent!
- Put the weekly food and petrol bill on your credit card
- Use your credit card for larger transactions
- Time your larger transactions to hit the start of the statement, so that you earn interest on your spent money for longer.
To use this technique effectively, you must pay off the balance in full every month (or at least before the end of the 50-odd days interest-free period is up), or it'll cost you a lot more in debt interest.
With a decent current account you might only make £10 to £40 a year doing this, but the great bit is that you can do this using any credit card!
Compare credit cards and current accounts through The Fool.
2. Borrow money to make money
With the stoozing technique, you look for credit cards that not only have 0% balance-transfer deals, but which also allow you to pay off overdrafts.
But, of course, you don't have an overdraft! So when you pay it in to your current account, it puts you further into credit. You then transfer the money to a decent easy access savings account (which you had opened previously), to earn you some interest.
A month before the 0% deal expires, you transfer the money back to your current account and pay off the credit-card debt.
This technique is not as profitable as it used to be, because 0% balance-transfer deals now come with a 2-3% fee! To make this technique profitable, you must transfer the money as soon as the card account is opened.
You must also stick to credit cards with good terms, such as those with 12-month deals and 2% fees. If you transfer a £10,000 balance the fee is £200. Even so, if use a savings account paying 5%, a higher-rate earner could expect to be almost £100 better off and a basic-rate taxpayer closer to £200.
3. Get paid cash by your lender!
Using cashback credit cards is a Foolish (and somewhat more simple) alternative to stoozing. By paying for goods on a cashback card, your card issuer pays you every time you make a purchase. Furthermore, as with point 1 above, the money you're spending stays in your current account for longer, earning you some interest.
Typically, cashback is paid once a year, although some cards pay every month. You can earn 0.5-1% cashback on most cards. However, you can sometimes find deals offering up to 4% for introductory periods, or on specified goods, such as food and petrol. Watch out for these golden chalices!
With a cashback credit card paying 1%, if you spend about £1,000 per month you'll earn yourself £120 per year. If you have a decent current account you could get tens of pounds more in credit interest.
Again, you must pay off your card in full every month if you want this to work.
4. Make even more interest on money you've already spent!
Whenever you make a purchase, you could use a 0%-on-purchases credit card. Then you transfer the same amount from your bank account to a savings account, so that you save the money you've just spent, and don't spend it again. Before the 0% deal expires, you transfer the money back to your current account and use it to pay off your card.
Let's say you have a 12-month 0% deal. You spend £1,000 a month in this way and save the rest in a savings account paying 5% AER. If you transfer the money out and pay off the debt at the end of month 11, you'll have earned about an extra £150 after tax at the basic rate and about £110 for higher-rate taxpayers. These figures will vary depending on when you make the purchases.
This compares reasonably well with the example we used on cashback credit cards. If your savings account pays even more then you gain further. However, the downside to 0%-on-purchases cards is the hassle in moving money to and from a savings account, and getting a new card every six to 12 months.
You must pay off the whole debt before the 0% deal expires, or it will cost you!
We have a lot of great 0% on purchases deals at present, particularly the market-leading Halifax One Credit Card. Check them out, or compare the whole market using our Search All Credit Cards feature.
5. Make money for worthy causes
With the right card your lender will donate to charity whenever you spend. This is a way to make money for good causes, but I don't approve. No, I'm not a miser, it's just that there are more efficient ways to do it.
Typically, these credit cards donate 0.25% to charity, although this can reach 1% on the odd occasion, or even higher if you borrow a lot on the card. Some of these credit cards donate, say, £5 to £15 after your first purchase as well.
Thing is, they simply don't beat top cashback credit cards. You would raise far more money for your charity by using a good cashback card and donating your annual reward, with Gift Aid, to your favourite cause. In fact, you could use any of the above methods to do so.
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