Easy; use someone else’s! Seriously though, depending on your financial health, you could be borrowing money at 0% and investing it relatively safely at 5% or more – just so long as you have no expensive debts, you’re on a winner!!
Please have a look at my book (out soon!) or just read through all the blog posts on this site to optimise your income minimise your outgoings and improve your credit rating before you start to use other people’s money to make some for yourself.
There is a HUGE caveat with this in that you really shouldn’t do it if you are not comfortable, you should also be very careful how you invest the money, keep the risk as low as possible especially as it’s not really your money!
Most importantly, keep it balanced! If you ever owe more than you have in savings you are in debt, this is a business model not a licence to spend.
Please also see the disclaimer on the home page; this does not in any way constitute financial advice, it’s just something I have done in the past to make a little bit of extra cash. Although over the years I have found a number of other advantages in structuring my finances this way, these include:
- Available funds to take advantage of short term investment opportunities (e.g. short turnaround on tangible assets such as cars or auction items)
- Has stopped me from going under or needing to borrow as a knee jerk reaction to demanding life events such as having kids or being out work through extended periods of illness
- I’ve been able to muster deposits for houses in very short time scales
- It’s boosted my credit rating as I have never missed a payment – EVER!
- I get better mortgage rates because I have a long term very good credit record
- I’ve reduced my LTV on mortgages to get better rates whilst paying 0% on credit cards
- I’ve used them to develop properties in the short term.
If you get this concept and you are comfortable with the management of it, you might want to think about how you can start to MAKE money by having debt.
In previous posts I have discussed using 0% cards to pay off higher interest ones. If you’ve already done this or are debt free, you can now transfer a 0% card balance into your current account.
In fact you can transfer a few, just make sure that you:
- Don’t use more that 49% of your available balance
- Don’t apply for loads of new cards in a short period of time (too many credit searches looks very bad!)
- Don’t take on more debt than you can service, i.e. you might be able to get £10k out of some existing and / or new cards on 0% but your minimum monthly payment to them would probably be about £200. Make sure you can afford this within your budget – defaulting would be a very very bad idea.
- Do set calendar and phone alerts for when the 0% runs out, letting these cards fall into interest charging instead of being the interest generators would not be good.
- DO invest the money safely; remember it’s not really yours.
Please do not start to feel like this is your money, it’s not as you have a debt for that same value. Don’t be seduced by looking at your credit balance and thinking that you have money: you don’t. Your saved money is like your employee that’s earning you an income via interest payments and it all belongs to your debt, not you. If you spend it, that’s like eating the golden goose and making a monstrous debt enemy at the same time.
The £5,000 capital debt is invested in a savings vehicle of some sort. This £5k is NOT YOURS – it belongs to the credit card company! DO NOT SPEND IT! If you see it this way you can avoid getting into trouble.
The following example shows how a 3 year 0% card with a 2.9% transfer fee on £5k might be used to earn £643 over the term.
So here you can see that you’ve taken £5k out on a 0% transfer for 3 years, you’ve paid £145 to transfer it and you’ve paid the minimum monthly repayments over the 3 years totalling £2,608. When the 3 years is up, you liquidate your savings (total of £5,788), pay off the final balance on the card of £2,537 and bank the remaining £3,251 which; given that you paid into the credit card over the year, provides you with a total profit of £643 (£3,251-£2,608).
All from money that was never yours!