If you're financially disciplined, why not make some money from your credit card?
With all the doom and gloom in the news relating to the Bank of England's decision to raise interest rates, it's worth remembering that not everything is dire. After all, the BBC is still showing The Apprentice every Wednesday -- and who isn't desperate to know what revenge evil Katie will wreak on Kristina this week?
Anyway...if the interest rate rise has made you feel poor, why not perk up your finances in other ways? For instance, if you consider yourself to be disciplined with money, why not make the most of your diligence and make some money from your credit card? Want to know how? Take a look at these tips:
1. Transfer that balance...
For a start, if you're paying interest on credit card debt, where have you been? We at the Fool have been writing about rate tarting for years! If you genuinely don't know what I'm on about, this is how it works.
You shift your credit card debt to a 0% card for balance transfers (best offers of the moment are probably from Barclaycard Platinum -- 0% until July 2008, 2.9% fee, or Tesco --0% for 12 months, 2% fee). This means instead of paying interest on your debt each month, you'll pay nothing (bar the balance transfer fee) giving you around a year to clear that debt, interest free. Great!
2. Earn interest by using free credit..
Smart cookies, of course, will not have allowed themselves to have accrued a balance on their credit card in the first place. This is where a 0% credit card for new purchases can make you some cash. Take a look at an example:
Sarah has just moved into a new flat and needs to buy some new furniture. Instead of spending her savings in one go, she could buy the furniture on a 0% credit card for new purchases (best offers of the moment include the HSBC MasterCard, 0% for 12 months, or the Sainsbury's Bank Platinum card, 0% for 10 months).
If she were to stash the money spent into a high interest savings account such as the Icesave account, paying 5.7%AER (5.95%AER from 18 May) she could pay off the balance when her 0% deal was up, and keep the interest earned (she must of course remember to set up a direct debit to make her minimum credit card payment each month without fail).
What's more, if she were to put all of her normal spending on the credit card too (similarly stashing the cash she had spent into her savings account) she could end up with a healthy sum of interest. Look at this example:
Furniture £2,000
Monthly spending (groceries, petrol, holidays etc) £700 per month
Total Annual Interest £387
So for very little effort, Sarah could have her furniture and be £387 richer, this time next year, which could surely pay for a holiday or some new clothes!
Extra tip: If Sarah were to buy her furniture from Marks & Spencer, the M&S &More card is currently giving 0% on new purchases until January next year, with two years' interest free credit if you buy furniture in its stores.
3. Snap up some good old fashioned cashback..
Finally, if 0% credit cards seem too complicated, cashback cards may be more your thing. By using one of these cards you'll earn a percentage of what you've spent back as cash. Spend £100 on a 1% cashback credit card and you'll get a quid back. Simple.
Top cashback credit cards of the moment include the American Express Platinum card, offering 3% cashback for the first three months, followed by 0.5% on spending up to £3,500, 1% for spending up to £10k and 1.5% on spending over this amount.
Spend £500 per month on the American Express card for a year and you could be looking at a cheque for over £72, this time next year. Spend £1000 per month and you could have £145 in cashback -- enough to pay for an iPod nano!
Alternatively, the Morgan Stanley Platinum credit card* is currently offering triple cashback -- 3% on spend up to £2k and 1.5% cashback on spending over this sum until September. After this point it reverts to 1% on spending up to £2k and 0.5% cashback for spending over this sum.
So there you have it -- three ways to make (or save) some money with your credit card. Remember, without discipline you won't make a penny (a late payment charge or accrued interest will more than wipe out any profit) so if you have any doubts about yourself, don't do it. But if you are good at staying out of debt, why not make some money with your credit card?
*The Morgan Stanley Platinum card mentioned above charges no annual fee. However, a number of readers have pointed out that anyone with the Morgan Stanley Classic card will have a whopping annual charge of £20 applied to their account from 1 June (if you're unsure which card you have, the Platinum card has the word "Platinum" written on it). Clearly any sort of annual fee negates the usefulness of a cashback card, so if you are to be charged, consider cancelling that card.
> Snap up a top card in our Credit Card Centre.
> Your Credit Card May Cost You More
> Seven Reasons To Fear Credit Cards