Making money from your credit card? It sounds wrong somehow, but in fact if you are good at paying attention to detail, very disciplined and prepared to play the long game, you can use what was traditionally seen as debt to your advantage. The days of easy credit are gone now but the worldwide financial crisis hasn’t been a disaster for everyone. If your credit history is clean and you have a secure income, cheap credit can still be found.
The key to earning from your debt lies in the 0% interest and cashback deals available with credit cards. A number of major lenders offer 0% interest on balance transfers along with cash returns on what you spend one in particular offers 1.25% cashback on anything you spend along with a 16-month interest free period.
So How Can You Turn This into Profit?
The system requires you to be strict and organised with your spending. You will need to spend on your credit card up to your spending limit and put the money you would otherwise have spent into a savings account or your offset mortgage. During your interest-free period, pay off only the minimum required while your cash is working hard for you elsewhere. The theory is that once you reach the end of the 0% interest term, you transfer the balance to a new and similar 0% deal and carry on as before.
For example, a couple each apply for credit cards at 0% interest for 16 months, with a 1.25% cashback incentive (2.5% after one year for the anniversary month in which they took out the card). Each spends their entire credit limit of 5,000 which, after fees, would earn them 75 cashback. Each month, they then pay off the minimum amount their balance will allow, let’s say 2.5%, so 100 in this case. This leaves 100 to be spent on the card each month to maintain that cashback benefit.
Pay Off other Debts
So far, so good, but realistically this does mean a debt of 5,000 per person. In the meantime, the 5,000 they each would otherwise have spent should be deposited into a savings account or used against an offset mortgage, with the latter offering the best rewards. Given a 150,000 mortgage at 3.69% interest against a property valued at 300,000, using that 10,000 of credit released by the credit card will chop 492 off the mortgage payments over the 16-month interest-free period. This is because on the mortgage the couple would be paying interest on a debt of 140,000 instead of 150,000.
With cashback earnings of 75 and mortgage savings of 492, the couple is 567 better off after 16 months. Had the couple invested that 10,000 in ISAs instead, at 3% interest plus a 2.5% 12-month bonus payment, they would earn 314.44 over 16 months. 314.44 plus the 75 cashback comes to a 16-month earnings total of 389.44.
What happens next is key because after your credit card‘s interest-free term is finished, you would then need to find a new equally rewarding deal, switch to a new credit provider and continue the cycle. If, for some reason, you are unable or don’t wish to obtain a new 0% deal, you will need to be able to access your original funds to pay off the 10,000 credit-card debt so you don’t accrue interest on that.
This can be problematic if you invested in a long-term savings deal with penalties for early access, or if transfer fees between credit deals are so high they eat into your possible savings.The system is fraught with pitfalls, but for a careful, dedicated person there is money to be made.