Making Money From Balance Transfers
Balance transfers have long been a mainstay of credit card marketing,ever since Egg first introduced them to the UK back in 2000. Much is made of their ability to save the cardholder money by not having to pay interest on their balance for a period of months.
Initially, this period was typically six months, but now fifteen months or even longer is possible with 0% offers. You can get even longer deals if you're prepared to pay a discounted rate of interest rather than no interest at all, and in some cases you can have your interest charges fixed at around 5% for the entire lifetime of your debt - which is much cheaper than most other forms of finance such as personal loans.
There's no arguing that balance transfers can indeed be a moneysaver for people carrying a debt, but crafty cardholders can also use the facility to actually make money rather than just saving it.
The first technique, named Stoozing after an internet user who first described it, is fairly well known. Basically, you take advantage of the fact that many balance transfer cards also allow you to transfer overdraft debt onto them, rather than just debts on other credit cards. You can use this to your advantage by using your new balance transfer card to make a payment to your bank, using your entire credit limit to pay off an 'overdraft' that doesn't actually exist, leaving you with cleared cash in your account.
You can then transfer these funds to a high interest savings account, leaving it to sit and earn money for you for the whole of the balance transfer period. You then use the money to clear your card debt before the 0% period is up, and you'll be left with no debt and a nice chunk of earned interest.
This used to be an incredibly powerful technique, and really could earn you a significant amount of money back in the days when balance transfers were plentiful and free, The introduction of transfer fees made Stoozing less profitable, but with recent rises in the savings rates available, it is now becoming viable once more, as the high interest earnings more than cancel out the transfer fee.
The second technique is really just a refinement of the first, and only applicable to people with offset bank accounts. With this type of banking, you can 'offset' your savings against your mortgage, reducing the amount of interest you pay.
In essence, you can use your savings to effectively reduce the amount you owe on your home - so instead of earning interest on savings, you'll be paying less interest on your mortgage. This usually works out to be a more profitable way of using surplus funds, as mortgage rates tend to be higher than savings rates, and you also avoid the tax payments involved with interest earnings.
The twist here is that you can use a 0% balance transfer facility to offset your mortgage for the period of the introductory offer, potentially saving you a lot of money. Further, you could use a lifetime balance transfer, which providing it is charged at a lower rate than your mortgage, could keep making you savings for years into the future.
Both these techniques are potentially nice little earners - not something usually associated with credit cards - but it's vital to be disciplined and make sure that you pay off your debt before the introductory period ends so as to avoid being charged interest, which will seriously erode any profits you've made.
- Combining Balance Transfers and Rewards
- A Lifetime Balance Transfer, or a Loan?
- Balance Transfers and Bank Mergers
- 0% Credit Cards : What To Look For
- Lifetime Balance Transfer Deals
- Credit Card Basics : Balance Transfers
- Why Balance Transfers and Cash Back Don't Mix
- Why Use a 0% Balance Transfer Credit Card?
- Getting the Best out of Balance Transfers
- Balance Transfer Offers Explained