Can you still play credit card companies at their own game?
A little while ago, it was top of the money saving pops to actually make money out of credit card companies by borrowing at an introductory 0% rate, then saving the cash or the money you would have spent in a high interest savings account. At the end of the 0% period, you simply pay off the credit card balance with the money from the savings account and pocket the savings interest. Simples.
Of course, nowadays, this scheme becomes a little more difficult to implement. There are still 0% cards available, and the interest-free period for purchases is now up to 16 months*, but being able to get these cards probably requires a pristine credit record. Also, cash advances are often charged a 2-3% fee, and with savings rates still low, the reward margin is unlikely to make doing this type of thing worth while.
But are there other things you could do? This is Money recently ran a feature where by combining a cashback 0% credit card and an offset mortgage savings account you could make a few hundred pounds in interest over 16 months, but this requires two people being accepted for the Amex platinum card and each being given a £5,000 credit limit. For maximum benefit you would also need to rack up that debt/credit on day 1 of the 16 months. If you were a more normal human who might take, say, three months to build up £10,000 credit card debt, the benefit of the scheme works out at a bit more than £20 a month. Better than nothing, but probably not worth the hassle. Similarly, the old trick of moving from 0% balance to 0% balance via a balance transfer has become much harder to get now lenders are really clamping down on the amount of credit being made available to people, and less worth it given the transfer charge rates.
However. If you are someone who uses credit cards you can always try and maximise the added extras. Cashback and loyalty point cards are an obvious way of ‘earning’ extra spending power, and if you are disciplined enough to put all your spending on a card and then pay it off before the interest kicks in, this could be a nice little earner over the year. Other cards might offer travel insurance or other ‘extras’, although these may come with an annual card fee- check that the cost is worth it and, particularly with travel insurance, whether you will be covered as standard. Many travel insurers require you to disclose any hospital stay ever before covering you, in case they want to bump up your premium.
Of course, standard card interest rates vary from just under 7% to over 35%, so if you are using the credit facility, just shopping around may save you a small fortune. Of course, you will still have the hurdle of being accepted for a lower rate card to get over first, and don’t make the mistake of applying for lots of cards in the hope of getting one- the effect on your credit rating is likely to make you a very stinky prospect. Better still, find another, cheaper form of lending, like a personal loan- again, if you can get one.
*figures from moneyfacts.co.uk