If you're debt free there are fantastic opportunities to be had actually making money from your credit cards - we show you how.
If you have finally managed to clear your credit card debt (or have been savvy enough not to get stuck in the credit card trap in the first place) you may well be tempted to cut up your cards and be done with this avenue of borrowing.
In theory that's a very wise thing to do; needlessly throwing money at credit card companies isn't my idea of fun either. However, before you start manically hacking at the pieces of plastic in your hand just put those scissors down for a second and let me tell you how you can actually make money from your credit cards.
Earn as you shop
Firstly, consider that the vast majority of cards grant you a 46 to 59 day interest free period between the time you spend on your card and the time you have to pay up - this can definately be taken advantage of.
By making everyday purchases by card rather than in cash, you have the opportunity to keep money you would otherwise have spent in your current account earning interest until your statement arrives. This can be especially beneficial if your current account pays a decent rate of interest, slightly less so if yours is less than generous with their AER (definitely something to look into!). However, for this to be worthwhile it is vital that you clear your balance in full each month, without exception.
Make the most of interest free purchases
To take this one step further (both the concept and the money making potential) you will need a credit card that offers a 0% introductory period on purchases;a high interest savings account that allows you to easily transfer money into and out of your account without penalties is also necessary. There are two basic ways of making money using this method.
The simplest works as follows - as described in the method above you spend on your credit card instead of using cash (for purchases such as petrol, food and so on), leaving money to accumulate in your current account and earn a little interest.
However, when you receive your statement, instead of paying off the complete balance, pay the minimum and transfer the remaining funds into your saving account. Repeat this each month for the duration of your 0% period, making sure you pay off the complete outstanding balance before the offer expires. This doesn't take much more effort than paying off your statement in full each month and earns you extra interest - bonus!
Another, slightly more profitable way of using a card with a 0% purchase period is as follows. Each time you spend on your card, transfer the exact amount in cash from your current account to your savings account, this way you accumulate interest as soon as you spend. As before you pay the minimum balance each month until just before the 0% offer expires when you pay off the outstanding in full.
It's most beneficial to go for a credit card with the longest 0% offer possible although you can always apply for a new card and continue when the original offer expires. However, regardless of which method you use it is essential that you meet the minimum payments each month as otherwise you are likely to be charged a penalty fee and may lose the 0% deal - you could set up a direct debit for this amount so that you don't forget.
Additionally, you shouldn't just make purchases on your card because its going to earn you interest. The idea behind this method is that you make purchases that you would have done anyway on card rather than in cash. You must also make sure that you don't spend the money in your savings account for the duration of the 0% period - don't even be tempted to do this as its a one way street into debtsville if you can't pay the balance off when the interest free period expires.
Cash-back as you spend
A more obvious way to
make money from credit card spending is by choosing a card that offers a cashback incentive. These deals basically work by recrediting you a percentage of your spend each year.
Most cashback cards offer a 1% reward, however they often include introductory bonuses where cashback can be up to 4%. By spending on your card as per my first example above you'll not only earn a little interest on the money in your current account but will also be granted a certain percentage back in cashback. If you are planning to book an expensive holiday or make an expensive purchase it can be best to do this during a cashback introductory offer.
As before, when using a cashback credit card it is important that you spend within your means - don't be tempted to flash the cash just so that you get cashback on your purchases. You must also always ensure that you pay the balance off in full each month otherwise you'll lose more in interest payments than you would have gained in cashback in the first place.
Make money from balance transfers
Commonly known as 'Stoozing' you can use 0% balance transfer credit cards to your advantage even if you don't have any outstanding balances to transfer. This works as some credit card providers allow you to pay off current account overdrafts using your credit card (effectively transferring the amount owed on your overdraft to your card). However, even if your current account is in credit you should still be able to do this providing you go for the right card.
Start by getting a credit card that offers a long interest free period on balance transfers and 'pay off' your (nonexistent) overdraft by transferring this balance onto your new card - you will then have a positive balance in your current account. Move the amount you have borrowed from your credit card to a high interest, accessible savings account, pay the minimum repayments each month for the duration of the introductory offer and watch your interest accumulate.
You must pay off the balance on your card in full before the introductory offer expires or you will be charged the card's standard rate of interest. You have two options when it comes to clearing the balance, you can either draw the money from your savings account and pay the balance with this, or you could take out another credit card with a 0% offer and balance transfer the outstanding on your existing card to the new card, enabling you to leave the money in your savings account for even longer.
A note of warning: Stoozing is only suitable for people who are completely free of debt and who have the willpower and restraint to not spend any of the money borrowed. For stoozing to be beneficial you must be able to pay back the balance in full when the offer expires - by taking any of the money out of your savings at any stage you are risking not being able to do this.
While 'stoozing' is a fantastic money making idea, unfortunately it is not as beneficial as it once was when banks first started introducing 0% balance transfer offers. This is because the vast majority of credit card providers now charge a handling fee for each balance transfer made.
When considering stoozing in this manner you must work out whether it is worth your while - calculate how much you will earn in interest and compare this to the amount you will have to pay as a handling fee. Generally, now the only realistic way to make money from stoozing is by going for cards with very long 0% introductory offers (these are becoming more readily available) or for one with a capped handling fee.
Whichever method you choose to go for (or perhaps a combination) the one thing you must do is to pay off either the minimum or full balance as necessary - good luck getting a little back from your credit cards!
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