Stoozing is back: how to make extra cash using credit cards
“Stoozing” is the process of borrowing money at 0% and earning a high return. But is it too good to be true? Rupert Hargreaves explains what it is and how you can potentially benefit.
Stoozing is back! But what is stoozing, I hear you ask?
For those not in the know, Stoozing is the process of leveraging a great credit score, 0% interest credit card offers and high-interest rates on savings accounts to achieve a relatively risk-free profit.
It might not be right for everyone, but it can help you make some extra cash if you know what you are doing.
What is stoozing?
In its most basic form, stoozing is the process of borrowing money at a low rate of interest and depositing these funds at a higher rate of return.
The easiest way to start is to borrow money at 0%. But it’s not possible to borrow a lump sum at 0%.
However, savers can make use of 0% purchase offers on credit cards to essentially borrow money for free.
Let say you apply for, and are given, the Barclaycard Platinum card, which currently comes with a 25-month interest-free period for new cardholders (subject to approval). You can then use this card for monthly spending and put the money you would have spent in an easy-access savings account.
When you’ve maxed out the credit limit on the card, you can move the money from the savings account into a one-year fixed savings account.
If you spend £500 a month on the 0% purchase card and move the funds you would have spent into a savings account, that’s £500 a month into savings.
If the card has a £5,000 credit limit, you could essentially borrow £5,000 or ten months of spending for free. Of course, this all depends on your credit rating and the deal offered by the provider.
Currently, the top easy-access savings account on the market is Yorkshire Building Society’s 2.5% easy access (which also has a maximum deposit limit of £5,000).
Moving £500 a month into this account over ten months would earn you £47.14. If you then moved this cash balance into the market’s best one-year fixed offering, (Shawbrook Bank 4.5%) you could earn another £231.86 in interest.
That would take the total profit to £279 over 22 months, leaving more than enough time to pay off the credit card balance.
Another option is to use a balance transfer credit card. The best balance transfer offer on the market right now comes from Sainsbury’s Bank. Those who are approved for the offer can transfer a balance for an upfront fee of 2.88% with no further charges due for 34 months.
A “stoozer” could take these funds and invest them in Tandem’s two-year fixed savings account, which comes with an interest rate of 4.8%, and earn a return from the difference – although due to the upfront fee on the money transfer card, the returns are going to be a lot lower.
Is credit card stoozing a risk-free way to make money?
Stoozing can be a risk-free way to make money because while you might be borrowing money on the one hand, you’re saving the same amount on the other.
The borrowed funds are not going anywhere, they’re sitting in a savings account waiting to pay off the balance.
But you need to make sure you don’t end up borrowing more than you can afford or borrowing to buy items you don’t need.
You also need to make sure you pay the balance off on time as not doing so can be very costly. Interest rates on credit cards tend to surge after the initial offer expires.
The rate on the Barclaycard outlined above is 22.9% after the transfer offer expires. On a balance of £5,000, that’s a cost of £1,145 a year. That’s enough to obliterate any profit earned from stoozing.
What’s more, borrowing money will have an impact on your credit score.
And if you are looking to apply for a mortgage or another finance product before the balance is paid off, lenders will take this outstanding obligation into account.
That means you could end up paying a higher interest rate on another product, just because you are trying to earn a few pounds by stoozing.
Stoozing risks and rewards
Stoozing can help you make a few extra pounds, but it’s by no means a way to get rich quickly.
It also requires a lot of work to set up different accounts and make sure you don’t end up paying too much credit interest.
Adam French, editor at our sister site The Money Edit, says: “You can get something for – almost – nothing and generate a modest amount of money by stoozing. But it’s only really suitable if you have savings and a decent income so you don’t need to touch your invested money or use the credit card for anything else.
“If you do decide to give it a go, make triple sure you know when the 0% period on your card ends, you’re unlikely to need to borrow money in the meantime and that your credit score is up to scratch.”
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