#03 Rewards, Cashback & Stoozing

Money Saving Tips

The typical interest rate on the vast majority of credit cards is considerably higher than that of personal loans. Therefore it is not recommended that you use a credit card to borrow money. There is an exception... Whereas some credit cards offer cashback or rewards when

you spend; others offer an introductory rate of 0%. By cleverly taking advantage of this in-troductory rate, you can often make more money from this type of card than through the best reward and cashback cards. Below, I have outlined the different types of credit card...

03.1 Cashback: It is exactly as it sounds. You get cashback equivalent to a given percent-

age (eg. 0.5%, 2%...) of the amount you spend on the credit card each month. But here’s a few things to look out for when picking a cashback credit card... Cashback percentage: Some credit cards offer up to 5% cashback as an introductory rate, but you must always check what the rates are after introductory offers, to make a fair com-

parison between cards. If you don’t plan to change your credit card every six months, a more consistent standard rate of cashback can often work out a better option. WARNING: Applying for credit cards has a small negative impact on your credit score. Limit credit card applications to a minimum, especially if you are going to be reliant on your credit

rating for something important in the near future (eg. loan or mortgage). You should also be aware of other credit searches that can affect your credit score, these include, mobile phone contracts, car insurance, personal loans, and many more. Don’t be too worried though; the effect is only small and your credit rating will recover after a short period of time. It is pretty much acceptable to apply for a credit card every six months, although there is no hard and

fast rule. T&Cs: Always read the terms and conditions of a credit card before applying. Some cards limit their advertised cashback to purchases less than a certain value, and may offer no cash-back, or an inferior rate to everything over.

Card Issuer: Most cards are issued by Mastercard and Visa, and are accepted by the vast majority of retailers and outlets, but some of the best deals are available through American Express, which is accepted by fewer stores. It is important to check that the card you apply for is accepted by the stores you spend in, and if not, you must be willing to use an alterna-

tive card in these stores. You should also be aware of potential charges for using certain cards in certain stores (particularly with Amex).

03.2 Rewards: Rewards credit cards are probably the most popular option, as they are often widely available in the form of store cards. As with cashback credit cards, there are

some things to look out for... Rewards percentage: Similar to cashback cards; rewards cards offer you a cashback per-centage, but in the form of points and vouchers. This allows the card provider to disguise the real value of the percentage. For example, a card may offer 100 points for every £1 you spend. This means on a £500 purchase, you would receive 50,000 points. It may sound

good; until you realise you need 100,000 for a £1 store voucher. This equates to a 0.1% cashback amount; not so good. This is why you must always calculate the value of rewards. T&Cs: As with cashback cards, always read the terms and conditions to ensure that the card is what you are expecting. Also, ensure the card is accepted by places that you wish to use it.

To get the most out of any reward, cashback or stoozing credit card, switch all of the spending you can to it, even your direct debits, mortgage/rent

(where extra charges don’t apply), but watch out for your credit limit.

03.3 Stoozing: One of the most common ways for credit card companies to attract our attention is with 0% interest on purchases for an introductory period. Spending with a card like this, is essentially like getting an interest free loan; so if it is offered, why not take it. I

am not endorsing irresponsible spending. The normal rule with credit cards is to pay them off every month in full, or even setup a direct debit to pay them off in full. However, when a card company is offering you interest free money, take advantage; simply change the way you pay off your credit card. Here is a step by step guide...

1. Apply for a 0% introductory rate credit card, with as many 0% months as possible, and the highest credit limit possible. 2. Setup the best regular savings account you can find (or maybe make use of an ISA), which

allows you to save as much each month as you plan to spend on your new 0% credit card.

3. Switch all of the regular spending you can to your new credit card. 4. Instead of paying off the full balance of the bill each month, put that money into your regular savings account and make the minimum repayments on the card. 5. Watch out for your credit card limit, and stop spending if you reach it.

6. At the end of the 0% interest period of the credit card, you have two options: Pay off the credit card in full, using the savings you have accrued, leaving you

with the interest from the savings; your profit. Transfer the balance of the card to another credit card which accepts 0% on

balance transfers and with low transfer fees. Keep your savings ready to pay off

the new credit card when the 0% period ends on that card. WARNING: When transferring debt from one card to another, calculate the cost of moving the balance (transfer fee) and compare it to the interest on the savings you will accrue. Also, beware of spending on a card that you have transferred debt to. Read the terms and condi-

tions of your card, or a mistake could mean you are forced to pay off the full balance of the debt to avoid charges, which would defeat the object of having the card in the first place.

Have a look at moneysupermarket.com/money to compare 0% credit cards and savings accounts.

GENERAL WARNING: You should only use credit cards for stoozing if you are well organised and can plan your financ-

es accordingly. Cashback and/or reward

cards maybe a more suitable alternative, if you are worried you won’t be able to plan your savings to cover your spend-ing.

Although possessing multiple credit cards simultaneously can allow you to get as much cashback as possible; you should limit the number to as few as possible. Cancel any unused cards; as having more

credit cards and a higher credit limit can damage your credit rating over time. Finally, don’t apply for credit card after credit card as soon as you are declined

for one, space out applications.

When credit limits are restricting your stoozing, try using a combination of types of credit card to maximise your rewards. You maybe able to make

£400 per year, just by changing the way you spend.

NEXT TIME... #04 Mobile Contracts

Information correct as of May 2011

Spending £750pm on three different credit cards over 1 year...

Credit Card Details Total

American Express Platinum Cashback

5% Cashback for 3 months, followed by

upto 1.25%

£196.88

American Express Express Rewards

1-3 points per £1 £90 bonus points

£200

Marks and Spencer

Credit Card

0% (15 months)

4% on savings in a regular savings acc.

1-2 points per £1

£243.83

£5000 spent in supermarkets, £1000 in department stores, £3000 in other stores