How to use credit cards with 0% promotional offers to save on interest costs.
Stoozing refers to using a credit card with an introductory 0% offer to save on card costs. By taking advantage of an interest-free balance transfer or purchase rate deal, savvy cardholders can pocket interest earnings when they shift interest-free credit card finances to a high interest savings account. Here we look at the process of credit card stoozing and whether it's worth it.
How does stoozing work?
There are two main ways to stooze with a credit card: The first option involves 0% balance transfer offers and the other uses interest-free purchase credit cards. We've outlined how each strategy works below:
1. Transferring your credit card balance to a high interest savings account
This option uses a balance transfer offer as an interest-free cash advance. The credit card issuer transfers up to a percentage of your credit limit into a high interest savings account. Pay back the balance before the end of the balance transfer period and any interest you earn from the savings account (minus credit card fees) is a gain. This method would require the following steps:
- Open a high interest savings account. Most of these savings accounts have no set-up, maintenance or withdrawal fees. They may also reward you with bonus interest for a limited period or every month when you meet ongoing conditions. If you’re not going to make regular contributions to your savings account, an introductory rate product will be more rewarding. You can apply for a second and a third high interest savings account to keep getting the introductory rate for new customers.
- Find a 0% balance transfer card. When you apply for a balance transfer credit card, you’re given space to enter the details of the account you want to transfer a balance from. Here, some financial institutions allow you to enter the details of a savings account. Alternatively, you can contact the credit card issuer over the phone to request a cheque.
- Earn interest on the balance. When the balance transfer is processed and the payment is made to your nominated savings account, you’ll start earning interest on the balance.
Note that with this type of stoozing, the balance transfer transaction may be processed as a cash advance. In this case, a cash advance fee will apply and the transaction may not be eligible for the 0% balance transfer rate – making the whole process worthless.
2. The 0% purchase rate method of stoozing
The second method of stoozing is to use a 0% purchase credit card in conjunction with a savings account. This option is simpler than the balance transfer method but requires more discipline. The steps involved are:
- Open a high interest savings account. If you don’t already have a savings account, open one so that you can start growing your balance and earning interest on your money.
- Apply for a 0% purchase rate card. Keep in mind that the longer the 0% purchase rate period is, the greater the opportunity you’ll have to earn interest on your savings.
- Use your credit card for all purchases. Instead of spending your own money, start using your card. Then put the money you would normally spend into the savings account so that it contributes to your interest earnings.
- Make payments off the credit card. You’re required to make the minimum repayment each month, which is usually 2–3% of the balance. Your repayments will increase as you spend more, but so will the interest you earn on your savings.
- Pay off the credit card. At the end of the purchase rate promotional period, you withdraw enough money from the savings account to pay the credit card in full. Anything left over is a bonus.
This type of credit card stoozing allows you to avoid cash advance fees, which can make balance transfer stoozing more trouble than it’s worth given current interest rates. But it still requires a solid budget and high level of discipline to avoid additional charges or credit card debt.
Pitfalls of stoozing
Stoozing can easily become a liability. If you’re thinking of trying out one of the credit card stoozing methods outlined here, make sure you also consider these common issues.
- Cash advance transactions. Cash advance transactions attract cash advance fees and high rates of interest. They are usually not eligible for 0% balance transfer offers or any other interest-free promotions. Check with the credit card company about how transactions will be processed before taking action. If it’s a cash advance, the cash advance fee can put you in the red.
- Transaction restrictions. Not all credit card companies allow transfers from a credit card to a savings account. You will need to contact the credit card issuer directly to confirm whether this is an option.
- Eligible purchases. 0% purchase rate credit cards don’t cover all credit card purchases. For example, many consider utility and service provider payments as cash advances, which could unravel your stoozing strategy.
- Variable interest rates. The standard interest rates available on a credit card or savings account are typically variable. This means they could fluctuate with market trends and may not offer as much value as you predicted at the start of a stoozing strategy.
- Credit card annual fees. Credit card annual fees can eat up the earnings you make from savings account interest payments. Compare credit cards to find a no annual fee credit card with a competitive deal on purchases or balance transfers if you want to go ahead with stoozing.
- Late payment fees. If you miss the due date for your credit card payment this type of fee could eliminate any profits. Make sure you make the credit card minimum repayment by the statement due date to avoid late payment charges. You can set up auto-payments from a savings account to pay your credit card minimum repayment each month.
Credit card stoozing relies on savings account interest rates. The higher the rate, the greater the gain. Keep an eye on the market to see the latest savings account interest rates. But even with strong offers, stoozing can have some drawbacks. As always, make sure to compare your options before deciding on a strategy.
Picture: ShutterstockBack to top