Can Credit Cards Reasonably Play a Part of Your Fiscal Structure?

I have used credit cards for decades and they have helped me to make and save money.  Don’t get me wrong, correct use of credit cards is unlikely to make you rich, but it can certainly make you money, ease the way in which you fund holidays, Christmas, or even a new car.

There are many ways that a credit card can help you fiscally, the first and obvious one is that they can delay the payment of some of your costs, sometimes by over 50 days, leaving money in your bank account to gain interest, or to fund other necessities.  If you have an offset mortgage, then using a credit card can even reduce the term of your mortgage, by weeks, months or potentially years!

In addition to delaying payment, gaining interest and perhaps reducing your mortgage, you could use a reward credit card, such as a Tesco’s Clubcard credit card, which gives you money off vouchers for their stores and even petrol stations.  Alternatively, the AA Credit Card gives you points that can be exchanged for rewards, such as Love to Shop vouchers.  It is worth doing a search on the www.moneysupermarket.com website to run a search on credit card rewards.

All of the above are great, and can save or make you a fair amount of money, just doing the above I was making about £100 per year, with the Tesco’s coupons then being able to be multiplied up, this saving became even greater.  You can, however, make more money from credit cards by making use of a cards 0% purchase rate.  With this, you can make purchases as normal, but instead of paying off the whole of the credit card balance you pay the minimum, whilst investing the remainder of the amount due.  You can, therefore, make money on the unpaid amounts, whether that be interest on a savings account (taking advantage of any first year bonus rates you can find), or by offsetting against your mortgage.

At the end of the interest free period you can then take the money out of the savings and paying off the credit card before the 0% period ends.  That way you have made money from clever use of the credit card.  To do this method properly and safely, it is important to ensure that you put aside the full amount of the credit card balance each month.

0% credit cards can also be a way of buying something that you cannot immediately afford.  So that you buy the item on, say, a twelve month interest free card, and then divide the total cost by the length of the 0% period, paying off an equal amount each month until the debt is cleared.  Effectively 0% finance on the product.  Again, you need to be careful when doing this, but it can save you money on bank borrowings, particularly for short term needs.

A third way that credit cards can help make money, is with a credit cards balance transfer feature.  These allow you to move debts from an interest bearing place to an interest free place, and to make more money.  Lets say that you have used a 0% purchase credit card and now have a debt with the card company of £3,000.  You could, theoretically, transfer that debt to a new 0% balance transfer credit card and obtain up to 18 or so months further interest free credit.

Now care must be taken, most balance transfer cards have an immediate charge, which could be from 1.5% to 3% and as such you should carefully consider whether it’s in your best interest to transfer.  If you can get a low transfer charge and invest the amount that you had saved to pay off the initial card in an account earning even 3% (this should be easy to find in an ISA or a one year fixed rate bond), then you could make between 1.5 and 3 times the transfer fee.  Potentially more, if the money sits in your offset mortgage.

If you marry all of these together you could spend your normal day to day shopping on your reward card, and buy big items on your 0% purchase and balance transfers cards, potentially saving a fortune on interest charges on bank loans, or HP interest.

Good luck to you all with your prudent fiscal planning.