A financial trick that uses credit card debt to make money has returned because of relatively high savings rates.
Financial conditions are now in a “sweet spot” for the strategy known as stoozing, said The Telegraph.
A “successful stoozer”, said MoneySuperMarket, effectively turns credit card debt into a short-term interest-free loan while keeping their actual money in a high-paying savings account.
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The difference between the savings interest and any credit card fees is your profit. But while the concept is “relatively simple”, successful stoozing “requires careful organisation and financial discipline”.
What is stoozing?
Stoozing is a way of “manipulating 0% spending credit cards to make money”, said MoneySavingExpert.
The method means you can “maximise interest earnings”, said The Independent, by spending on a 0% interest credit card “while diverting your actual cash into high-yield savings accounts”.
How stoozing works
Stoozing involves taking out a long-term 0% spending credit card and using it for your normal daily spending, while any unspent money from your bank account – such as your wages – goes into a top savings account to earn interest.
You need to make sure you pay off the credit card bill each month. When the 0% deal is about to end, you will need to either “pay off the balance using the money from the savings account or transfer it to a new credit card with a 0% balance transfer”, said Go.Compare. Meanwhile, any interest you earn on the money in the savings account ends up as profit.
Pros and cons of stoozing
The method can be “lucrative”, said MoneySavingExpert, but it will not work if you are “not very financially organised, unsure of how it works, have a poor credit history, don’t have financial self-discipline, or have other credit card, overdraft or loan debt”.
It is a “relatively low-effort” way to earn some extra money and maximise savings interest, said Moneyfacts.
But there are risks. You could be hit with interest charges if you don’t clear the debt, said CompareTheMarket, “undoing all the good work of having your money in a savings account”.
Taking out too much debt can also have a “negative impact” on your credit score, said Money to theMasses, which may make it harder to borrow money for a “legitimate reason” such as if you need a mortgage.
Plus, you may regret “locking away your savings” if you suddenly need the money sooner than expected, as there may be penalties for early withdrawals.
Is stoozing worth it?
Stoozing “only really works”, said uSwitch, when “savings interest rates are high”.
The method can be “worth the hassle”, said Go.Compare, if you have “strong credit” as well as “discipline for timely repayments”. Stoozers also need to be able to invest borrowed funds “profitably”. It is risky if you will struggle to pay the credit card bill or “the returns are too small for the effort involved”.
There are alternatives to stoozing, such as reward or cashback cards that pay “a percentage of your money back or build points to redeem in shops”.
