Inflation is rising and many people are understandably concerned about the impact on their finances. But did you know that you can actually use a credit card (yes, a credit card) to use inflation to your advantage?
Here’s everything you need to know about a trick that is sometimes referred to as ‘stoozing.’
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What’s the current situation with inflation?
According to the ONS, inflation is currently running at 5.4%. This is far higher than the government’s 2% annual target.
So, with inflation running so high, it’s now impossible to stash your cash in a normal savings account and earn anything close to the current rate at which prices are rising.
Right now, the top easy access account pays 0.71% AER variable. Meanwhile, the top fixed-rate savings account pays just 2.12% AER (fixed for FIVE years). These low rates show that if you want to beat inflation, savings accounts probably aren’t the way to go.
How can you protect your wealth from inflation?
Unfortunately, there’s no sure way of beating inflation.
While some may choose to invest in stocks and shares through a share dealing account to combat rising inflation, others may instead prefer to invest in fine art, antiques, commodities (such as gold) or even real estate. Whatever you choose, remember that there are inflation risks associated with any asset class.
So while there is no guaranteed way of beating inflation, it’s worth exploring how a credit card could allow you to at least benefit from the current situation.
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How can you beat inflation with a credit card?
Given current concerns around rising prices, it’s worth being aware that you can use a credit card to benefit from rising inflation. This is all thanks to something known as ‘stoozing.’
‘Stoozing’ refers to profiting from a 0% credit card deal in an unconventional manner. To profit from inflation by using a credit card, there are three steps to follow:
1. Use a 0% purchase credit card for your everyday spending.
As long as you have a decent credit score, it’s likely you’ll qualify for a lengthy 0% purchase credit card. Right now you can borrow for up to 23 months at 0%!
If you’re accepted for a card, use this for your normal spending until the 0% period ends. Just ensure you stay within your credit limit.
2. Let inflation eat away at your balance
As and when you add to your credit card balance, anything you rack up will, in real terms, reduce in value as a result of rising inflation.
For example, run up a £5,000 balance on a 0% credit card for one year, with a 7% inflation rate (as some analysts predict), and your balance will be worth roughly £350 less in a year’s time. In other words, your balance will, in real terms, have decreased thanks to rising inflation.
3. Clear your card (or do a balance transfer) before the 0% ends
Once your 0% period is almost up, you can clear your balance as normal, safe in the knowledge that you’ve managed to borrow at 0% during a period of high inflation.
Alternatively, if inflation continues to take off in the years to come, then you can continue to see your balance reduce in real terms by shifting your debt to a 0% balance transfer credit card. That’s because these cards allow you to move existing debts to them.
Do this, while making the minimum repayments, and you’ll continue to see the value of your balance erode in real terms.
If you do go down this route, ensure you don’t spend on your new balance transfer card. That’s because balance transfer cards rarely let you make interest-free purchases.
What else do you need to know?
While using a 0% credit card can offer a nifty way to use inflation to your advantage, no credit card should be used as an excuse to overspend. In other words, it’s best to only use a 0% purchase credit card for your normal spending.
If you wish to explore using a 0% credit card to beat inflation, then also ensure you make the monthly minimum repayments during the interest-free period. If you don’t, you’ll lose the 0% deal.
Are you interested in learning more about credit cards? See our article that explains the types of credit cards.
