FOOL'S EYE VIEW
Be A Winner In The 0% Game!

By Cliff D'Arcy
January 20, 2005

I've let my credit cards get the better of me twice in my life, which taught me some valuable lessons about borrowing money.

I built my first credit-card mountain while at university, racking up some impressive spending at a time when my income was fairly modest. It took me about three years to clear my student debt, after which I vowed to use my plastic cards sensibly.

However, I failed to keep my vow and, thanks to a nasty spending habit that began in 1995, I was soon up to my neck in debt again. At the start of 1998, I sat down and worked out that I owed almost £50,000 to fifteen or so different lenders. Anyway, through much wheeling and dealing, selling assets, squeezing my finances (and a big slice of luck), I became debt-free within a year. I've kept my original spreadsheet to remind me of how crazy I once was - never again!

So, I've learned my lesson the hard way. Now I'm going to tell you how I've made money from credit cards in each and every year since I beat my debt habit. I've been an aggressive player of the "balance transfer" game, which allows you to profit from the low-interest or no-interest (0%) deals offered by credit-card companies. Follow these seven rules and you too can beat the system and earn money from your plastic:

1. 0% deals aren't all the same

In effect, 0% deals can be divided into three separate types. Some 0% cards charge no interest on balance transfers (BTs) and new purchases for an introductory period. Some offer 0% only on balance transfers, while the remainder offer 0% only on new spending. For the record, there are over sixty cards offering 0% on balance transfers, but only around forty cards offering 0% on BTs and new spending.

Here's the rub: go shopping with a pure 0% balance-transfer card and you'll pay standard interest rates on your spending. What's more, practically all 0% cards put your repayments towards paying off your 0% debt first, so you'll be paying interest of up to 25% APR until your entire balance is cleared. So, if you plan to transfer a balance and start spending on your new 0% card, make sure that it offers a "double 0%" deal!

We have several cards of both types in our Credit Card centre.

2. Even if you don't owe anything, you can still make money

Of course, 0% cards are only of use to people who have debts elsewhere, right? Wrong! If you shop using a debit or credit card, you can use a "0% on new spending" card to enjoy up to a year's interest-free credit. All you do is pay for all your purchases with your new 0% card and pay only the minimum monthly repayments, usually 2% to 3% of your balance.

So, instead of having to find, say, £500 a month for your credit-card bill, you only need to cough up a fraction of this sum. Put the remainder into a high-interest easy-access savings account and you could earn a tidy sum in interest. For big spenders, this extra interest could add up to hundreds of pounds a year. And, of course, the aim of the 0% game is not to pay a penny in interest. So, just before your 0% deal ends, use your savings to pay off your balance in full. The end result is that you've earned extra savings interest for very little effort.

3. Watch out for balance-transfer fees

Some credit-card firms have started charging upfront fees to cardholders who wish to transfer balances from other cards. These charges can be as high as 2% of the balance transferred, up to a maximum of £50. So, transfer a balance of £2,500 or more and you'll be hit with a fee of £50.

Just before Christmas, I predicted that more and more card issuers would introduce these fees - and this has already happened. Barclaycard, the UK's biggest credit-card firm, has been charging BT fees since last year. The MINT card recently introduced BT fees, and US groups Capital One and MBNA are also flirting with these charges. Again, I expect more lenders to follow suit.

4. If you're only transferring balances, ignore the extras

If your new plastic is a "0% only on balance transfers" card, you won't be going shopping with it. So, you can ignore any loyalty points, cashback rewards or other gimmicks, because you can't use them.

However, if you go for a "double 0%" or "0% on purchases" deal, you can use your card for purchases, which means that you can earn cashback of up to 2% of your spending. In other words, you can avoid paying any interest and get paid to spend. Strange but true!

The Best Buy 0% card for shoppers (but not for balance transfers) is the Sainsbury's Bank VISA card. It offers 0% on purchases for an entire year, money-saving vouchers and 0.25% cashback (or Nectar points). Another card in the Best Buy tables for shoppers is the Nationwide BS Classic card, which charges no interest for six months on both purchases and balance transfers. It's available via the Fool.

5. Watch out for stiff penalties

Credit-card companies like to make money – ideally, lots of it. In fact, last year they made billions and billions of pounds, mostly from unlucky, unwary or over-spending cardholders. One of the most painful things they do is to punish customers who break the rules. So, if your monthly repayment is late or your cheque bounces because you don't have enough in your bank account, you'll be fined £25 or so. The same applies if you exceed your credit limit, which sensible 0% players never do, of course!

As the 0% game is about getting something for nothing, my advice is to set up a Direct Debit for your minimum monthly repayment. That way, you never miss a monthly repayment and won't fall foul of these fines.

6. Be disciplined - and know your enemy!

This is the crucial bit, so pay attention at the back. Once you've chosen your new Best Buy 0% card, successfully applied for it and arranged your balance transfers or begun spending, you can sit back and relax, correct? No, no, no, no, no!

Credit-card companies absolutely love 0% players who slip up or forget the rules, which happens often. For example, more than one in three people fail to pay off their balance before their special-rate or 0% deal ends. Of course, smart "rate tarts" don't pay off the balance from their own pocket, they simply get another 0% card and surf their debt across to it!

So, know your 0% deal: is it for a fixed period, say, six months from the date that you opened your account or arranged your transfer(s)? Or is it until a fixed date, such as "0% until 1 September 2005"? Don't forget: always write down the details of your 0% deal on your calendar and diary - make a big note in red crayon or whatever, along the lines of "My 0% card deal ends today!". Even better, write these details on a small sticky label and attach it to your card. (Don't obscure any important information, the magnetic strip or microchip.)

So, you're paying no interest on your debt, or enjoying up to a year of interest-free spending on your 0% card. But the game's not over yet – the best is yet to come. If you're disciplined, organised and financially savvy, you can earn thousands from your plastic with my final tip:

7. Become a "super tart" or "stoozer"!

Currently, I owe almost £34,000 on three 0% cards. But I haven't spent this money, nor is it the result of transferring other debts. What I've done is to borrow money at 0% from credit-card companies and add it to my savings. However, I didn't do it by withdrawing cash on cards, which is a complete no-no.

Here's the trick: several card companies allow you to make balance transfers directly into your bank account. Therefore, I transfer, say, £25,000 into my bank account and then forward this money to my savings account. If a card company doesn't offer this service, you can get around this problem by doing a balance transfer to another card that does (called a "router"), then send the money to your current account. You can learn more about stoozing from this website, which was created by two cool Fools, Clariman and Stooz.

Typically, the whole process takes four to ten working days. After this time, I have £25,000 in my savings account, earning me annual interest of 5% or more. Even after tax, I make around £400 from this twenty-five grand over six months. When my 0% deal expires, I give the bank its money back, but I get to keep my £400 of interest. Thus, I'm earning savings interest from someone else's money!

Another technique is to transfer this money into an offset mortgage account, which temporarily reduces your mortgage balance and saves a fortune in interest. I know someone who avoided paying interest on £50,000 of his home loan purely by stoozing! If you're paying 5.75% on your current account or offset mortgage, reducing your balance - even temporarily with 0% deals - is the same as earning a tax-free annual rate of interest of 5.75% on this money. For basic-rate taxpayers, this equates to 7.4%; for higher-rate taxpayers, it comes to a chunky 9.6%!

So, play your cards right and you can earn thousands of pounds every year from your flexible friends!

More: You'll find several Best Buy cards in our Credit Card centre | Ten Crafty Card Tricks.