Credit Cards: Use Them To Make Money!
It may seem odd that a financial product designed to offer credit can actually make users money in the process, but it’s perfectly possible. Here is our definitive guide on how to earn extra money while using credit cards. This article will show some methods that I have actually used to earn some money 'back' from the credit card companies but it is not suggested that you can give up the day job just yet!
The Right User
The potential credit card money maker needs to ask themselves three questions:
- Am I in debt already?
- Am I loyal to any one card or bank?
- Have I time to invest in my finances?
If they answer yes to question 1 or 2, they are not good candidates for making money from cards. Only users who can pay off their balance in full at the end of each month will truly make money from credit cards. Otherwise, the standard interest charged on any balance will eradicate any profits made.
A Question of Time
Finding the right credit card deals and juggling finances does take time. The credit card holder with neither time nor interest in doing research and sorting their finances out (usually online) should not try to make money from cards.
Time is Money
The card holder with time is the card holder with power. The user with time, a good credit rating, and access to the internet is even more powerful!
Cash Back Credit Cards
The most obvious way to make money whilst spending is to use a cash back credit card. These cards offer a percentage of the user’s monthly spend back, from 0.5% to 2%. The cash back is credited against the next month’s spend. However, this is only profitable if the balance is paid back in full each month, otherwise the interest charged on the balance will be much greater than the cash back earned.
Cash back verses debit cards; the art of 'Stoozing’
Stoozers are card users that have realised that they can borrow money for free, and play the system accordingly. These smart users replace their debit card with a cash back credit card for purchases (but NEVER cash withdrawals.) By purchasing exclusively using the cash back card, they in effect earn a percentage way above the paltry interest rate of an ordinary current account. The full balance is paid from their current account to the cash back card every month, so there is never any interest accrued.
Cash back and current accounts
The smart saver looks for a current account that pays a good rate of interest, and STILL uses the cash back card as above. This way, their money is earning interest in two places, in the current account and as cash back on the card. Again, the full balance must be paid off on the cash back card every month.
Sweepers
Card holders can also sweep (transfer) their cash back spending money out of their current account into an easy access savings account where it earns interest, and then sweep it back into their current account when the cash back repayment is due. Realistic budgeting and strong willpower is also required!
Mortgage Sweeping
Any interest earned on money in a bank account is taxed at source. One smart way to get tax-free interest on swept money is to have an offset mortgage. Money added to the savings element of an offset mortgage account decreases the total debt, so less interest is charged. The money can be swept back again once the cash back card balance is due. Since no interest is actually paid as such, no income tax is applicable, so this makes any savings tax-free.
Budget Warning!
Remember, the money in the current account (or savings account if swept across) is NOT available as ‘extra’ spending; it is there to pay off the cash back card at the end of the month. Top ‘stoozers’ can also run several credit card 0% balance transfers one into the other, whilst earning interest on their savings. Usually, the limit comes when the debt is too large for the credit card credit limit.
Reward cards
Reward cards can offer substantial discounts on items from cds to cars, but the rewards only tend to profitable if the user is already planning a big purchase or a special item. Otherwise, the restrictions on redeeming the points earned, combined with their low actual value, makes them poor value compared with cash back.
Balance Transfers
0% balance transfer deals are a great way to borrow money for free, but ONLY if the balance is paid off in full at the end of the special offer period. Smart savers ‘pay back’ the balance due each month into a high rate savings account or an ISA, earn interest on it, then simply pay off the balance due from that savings account at the end of the 0% period.
Golden Greeting
Many cards offer special gifts to new customers in addition to low interest rates. There is nothing stopping a new customer signing up for a card, taking the special offer, and never using the card again. For example, new Amazon credit card customers currently get a free £15 Amazon voucher, with no strings attached (of the ‘spend £50 to save £5’ type).
Store cards also offer great discounts when customers sign up, but always pay off the balance immediately. Keep the card only for the special offers and sale previews offered, or for further discounts. Store credit card interest rates are usually horribly high, approaching 30%.
There is one drawback to this, in that multiple credit card applications in a short space of time will adversely affect the user’s credit rating. Choose only cards that have real, profitable offers, and always cancel old cards that are no longer used.
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