Generally speaking, the rate of interest we’re expected to pay on money we borrow far outstrips the rate we’re rewarded with for saving. This is the basic premise that allows lending institutions to turn a profit – they pay less to their investors than they recoup back from those they loan their money out to.
However, you don’t have to be a big corporation to make the disparity between different rates of interest work in your favour. With a little bit of cunning you can take advantage of a ploy known as ‘stoozing’ to line your pockets through your everyday spending habits. Though it may sound too good to be true, it’s endorsed by well respected money-smart people such as Martin Lewis and is a tried and tested way to get the best out of your cash. Here we guide you through how to make use of this ingenious ploy.
How It Works
The first step is to obtain a credit card offering 0% interest on all spending. Of course, this isn’t always as easy as it sounds. The best cards will require you to have a good credit score. Likewise, if you have debts on existing cards, you should focus on looking for a card offering 0% balance transfers rather than one where spending is interest free (although some do provide both.)
If you are in a position to acquire such a card, the question of which to go for will be determined by a combination of two factors: the length of introductory 0% offer (it only ever applies for a limited time) and any extra rewards you stand to gain through using the card. Some of the best credit cards available in the UK today offer almost a year and a half of 0% spending to those with decent credit history, whilst others give bonuses such as clubcard points or vouchers.
When you have the card, switch all your spending over to it, setting up a direct debit to cover the minimum monthly repayment. As all your spending goes through the card, save for the aforementioned direct debit, your current account is left unscathed. You should then take this money and set it to work earning you interest, be it in an ISA or a high-interest savings account. It’s best to go for an option that won’t penalise you for withdrawals or limit your access to your money, as you may have to move quickly to pay off your balance at some point.
If you have a flexible or offset mortgage, your biggest financial gains are to be made by using the extra cash you have available to pay in and reduce the interest on your loan.
When the offer is coming to an end, pay off the balance using your savings and, as there’s no interest to be paid on the debt, you’ll be able to cover it with a nice margin left over. Alternatively, you can switch to another 0% offer and continue as before, though the fee for transferring the balance may eat up a lot of your profits.
Another ploy would be to simply take out another card with 0% on spending and run through the whole cycle again, keeping your savings piling up all the while.
Risks
If you do this wisely it’s basically a risk free way to make money. However, mistakes could hurt you. The most obvious error to avoid is failing to remember when the 0% offer expires. If you’re still piling all your spending on your credit card when the new rate kicks in, you could end up wiping out all your efforts in a single month.
Secondly, this tactic will mean you have a high level of unsecured debt whilst you’re playing the stoozing game. Of course, the whole point of the system is that you are using what you’re saving in interest to make money rather than spend it, but nevertheless it can impact on your ability to borrow until the balance is cleared. Of course, once it is cleared, it will constitute a positive contribution to your credit history.
Your credit history also needs to be considered if you want to use the scheme multiple times or on a few different cards at once, as a high number of applications across a short space of time can raise a red flag for anyone inspecting your file.
