Although credit cards were originally designed as a tool for simplifying financial transactions, competition and developments within the industry have seen credit cards evolve to become much more.
Balance transfer, and other popular 0% cards were initially developed to encourage people to switch card provider, but canny individuals soon realised that these cards could be used in a different way to actually make money.
What is stoozing?
Stoozing is a way of using the differences between borrowing and savings rates to make money.
When people stooze they use 0% debt, available from some credit cards, to increase the money they are able to deposit in high-interest savings accounts, thereby maximising the interest they can earn.
History of stoozing
The term ‘stoozing’ is thought to have originated in the personal finance forums of the UK Motley Fool website. It was coined by other users in reference to a contributor with the user name ‘Stooz’ who was particularly successful at making money using 0% debt and savings accounts.
How to make money by stoozing
There are numerous different ways that an individual can successfully stooze, but they are all dependent on two key elements.
- Very low (ideally 0%) borrowing costs
- High-interest savings
The exact method for accessing low-interest debt will vary from person to person. Credit card deals and their associated terms change on a daily basis, but perhaps the most common methods for accessing cheap borrowing are:
0% purchase cards are a very popular tool for stoozers, because they offer people 0% interest on new credit card purchase for a set introductory period. Everyday purchases can, therefore, be made using the card, while other income is simply deposited in a savings account.
Once the introductory deal expires the balance is simply repaid using the saved money.
Warning : Be sure to make every minimum payment on time and in full or the introductory deal is likely to be withdrawn. It is also essential that people using a 0% purchase card for spending, track their spending to ensure that do not exceed their credit limit, which will also result in them forfeiting the advantageous promotional rates.
Although fewer people are familiar with the money transfer concept, it is another method which can be used to great effect for stoozing. Money transfer cards enable their holders to transfer money directly to their current account, for a fee.
These monies can then accrue interest in the current account (if it is an account which pays interest), or transferred to another saving product, for the duration of the introductory period.
When the deal expires, the monies are simply used to repay the balance owed.
Warning : As with all credit cards, it is essential that minimum payments are made on time and in full. People using a Money Transfer product should also be aware that the transfer fees associated with these products can be relatively high, which can diminish the returns available through stoozing with them.
0% Balance Transfers
Balance transfer products enable their customers to transfer an existing card balance to a new card with 0% interest for a given period. These cards are therefore perhaps best suited to people already stoozing who are looking to extend the period that they can save for (especially if a 0% fee card is available) to take full advantage of the compounding effect of interest-on-interest that long-term saving has.
Does stoozing impact your credit score?
The products required to successfully stooze are almost exclusively available to people with excellent credit scores. However, potential stoozers should be aware that stoozing is likely to have an adverse effect on their score. This is because people drawing down most of a credit limit to save elsewhere will be seen as having a high utilisation rate – they are using most of their available credit. High utilisation of rolling credit products tends to be more typically associated with people who are in financial distress. It will, therefore, reduce an individual’s ability to access additional lines of credit.
Getting the right savings account for stoozing
With interest rates at historic lows, the opportunities to exploit the differences between bank savings and borrowing interest rates have been considerably reduced from the heydey of stoozing.
New peer to peer opportunities do exist that could make stoozing a profitable activity once again. However, it must be stressed that although a number of products now appear to offer generous savings rates, they are not all backed by the governments FSCS deposit protection scheme. As such they offer savers little to no protection if the firm becomes insolvent, and people who are risk averse should steer well clear.
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