Credit Cards

When most people think of credit cards, they associate it with getting into debt and it costing them money. But in the UK (this might apply to other countries as well) there are a couple of things that you can do to use credit cards to make you cash.

Firstly a quick explanation of how credit cards work. When you receive a credit card you will have a limit attached to it. You can spend up to that amount without needing the cash available right now. So when you purchase something using your credit card, the credit card company pay for the item. Then at the end of the month you will get a bill for the balance which you owe on the credit card. If you pay the balance in full then you don’t have to pay any interest (i.e it doesn’t cost you anything). However if you don’t pay everything you owe then you will be charged interest on your outstanding balance. This is usually high, from 20% upwards, and is how the credit card company makes money, by people spending more than they can afford to pay back. So as long as you always pay your balance in full, credit cards will never cost you anything. But not all credit cards are made equal. Some have different offers attached to them in order to encourage you to spend or to sign up with them.

Here are the offers you can take advantage of and how to do it in order of making the least amount of cash to the most:

Cash back on purchases – This is the most straight forward way to make cash with a credit card but also the lowest amount you can make. Some credit cards will give you cash back on all purchases you make. This is generally something like 0.5% or 1%, which may not sound like a lot but over a year if you spend £10,000, that means an extra £100 in your pocket. You may also get an introductory offer of something like 5% cash back on all purchases for the first 3 months. All you have to do is stop using cash to pay for things and use your credit card, then at the end of the month pay your entire balance off with the cash that you would have used in the first place. This only works if you pay your balance in full every month otherwise what you make is quickly lost through paying interest. Don’t get carried away buying more than you would usually because you still need to be able to clear the balance owed each month.

Zero percent money transfer – A money transfer is when you take a portion of your credit card limit and transfer it to your bank account as cash. You then take this money and put it in a high interest rate savings account which earns interest. This is known as stoozing. It won’t work with all credit cards so make sure you follow these four steps:

  • First, make sure the credit card has an offer with a 0% interest rate on a money transfer for a number of months. The longer the better. 18 months or more would be especially good. Sometimes you will have to pay a transfer fee but this is one off (usually 2-3 % but you can get 0% transfer fees).
  • Second, you need to make sure you don’t spend that money and put it into some investment vehicle that earns you more than any fees you have paid. This can be a savings account, an ISA, Peer to Peer lending, etc
  • Third, you have to make sure you pay off the minimum payment each month on the credit card balance for the duration of the offer. If you don’t do this you may be charged interest and lose your zero percent interest rate. 
  • Fourth, make sure you pay the money back at the end of the offer period. This is important so make sure you record the date the offer finishes and can access the cash you have invested when it is needed. If you don’t pay the balance off in full at the end of the zero percent offer you will be charged high interest rates on the amount you owe.

Zero percent purchases – Similar to Zero percent money transfers, some credit cards will offer you 0% interest on all purchases you make for a certain amount of time (the longer the better). To take advantage of this, you use this credit card to pay for all purchases you would usually make with cash. Then you follow the same process as in steps 2-4 above.

  • Take the cash you are saving and put it into an investment vehicle.
  • Pay the minimum each month.
  • Make sure you can pay the balance off at the end of the offer period.

The good thing about using a card offering zero percent interest on purchases is that you won’t pay any transfer fees at all. The downside is that this may take a little longer to build up a cash pot to invest.

Zero percent balance transfer – This is used when you already have an outstanding balance on an existing credit card. You can use it in conjunction with a zero percent money transfer or zero percent purchases. Once the introductory period ends (for example 18 months) on one of your credit cards, instead of taking that money which you have invested and paying the balance back to the previous credit card, you take out a new credit card with a zero percent balance transfer offer and transfer the balance of the previous credit card onto the new credit card. This way you have “renewed” your introductory period by simply moving the outstanding balance from one credit card to another (lets say for another 18 months). You can leave the money you took from the original credit card and leave it where it is. Continue making the minimum payments as before but now on the new credit card. The previous credit card can then just be left alone and what you find is they will send you an offer in the future for another zero percent offer.

Use credit cards to invest in assets – This is the way you make the most money with credit cards. Use a combination of the previous three methods: zero percent money transfers, balance transfers and purchases to borrow money from credit cards (essentially using it as an interest free loan) and invest it. What you invest it in is the key to how much you make. The higher the return you can get, the more money you will make. So while a savings account, an ISA or P2P loan can be a good way to make some safe extra cash, if you want to make more money you could take the cash and invest in something that gives you a greater return. Some examples would be the stock market or the deposit on a property. But keep in mind that these are more risky and could lead you to losing that money.

The absolute vital points with all these methods is that you don’t get carried away spending more than you usually would, make sure you meet the minimum payments each month and don’t lose the cash you have borrowed unless you have another way to pay it back at the end of the promotional period. This is why investing in something like the stock market or property can lead to higher returns in the long run, but you have to be able to pay the balance on the credit card back either through removing the money from the investment or transferring the balance to another credit card with a zero percent interest rate. If you don’t pay the balance back at the end of any of these zero percent offers you are going to be paying higher interest than you are making, meaning it will cost you money rather than make you money.

Extra Cash

A way to make even more cash from a credit card is to use a cashback site to apply for the card. If you go to TopCashBack and search credit cards you will find there are some you can earn cash back on straight away.

Top Tip

A couple of things to remember:

  • When you apply for a credit card you will have a check done against your credit profile. A lot of searches in a short period of time can have a negative effect on your credit score so make sure you space out any applications you make.
  • The more you can you can borrow from a credit card and invest then the more you can make as long as you pay it back when the zero percent interest offer is finished.
  • By building up a large balance on a credit card, if you were to do something like stoozing mentioned above, it may affect your credit score because of the amount you owe. This is more to do with the percentage of the overall credit limit across all cards rather than the actual monetary amount. So for example if you have a £5000 limit and you transfer £4500 into a savings account this is 90% of your credit limit and could have a worse effect than someone who has £20,000 loaned from a £80,000 limit which is only 25% of their credit limit. A way around this is to have multiple credit cards but only transfer the balance from one card. This way the amount of your overall limit that you have used as a percentage is smaller. Also with large balances.
  • Lower credit scores and higher borrowing on credit cards can affect your ability to get things like mortgages or loans so keep this in mind if you are planning on applying for one while doing any of these techniques.