Hacking the credit card systemApr
The phrase “rate tart” is being used more and more nowadays. As I'm sure you know, it refers to someone who switches their debt to a different credit card company every six months or so to take advantage of successive interest-free offers. This phenomenon has sprung up as a side-effect of the way credit card companies operate.
But if you don't have debts, interest-free credit card offers are of little benefit, so you can't get in on this hack. If you have savings, what you really want is not interest-free, but free interest.
A week or so ago, my friend G told me about a scheme that provides just this. It's beautifully elegant and, for me at least, requires very little effort. You may already be aware of it but it's so good I simply have to share it. I'm embarrassed to admit that I hadn't thought of this sooner.
The premise is simple: pay for everything with your credit card instead of your debit card or cheque book. Use it wherever possible. To avoid paying interest on the credit card, you must make sure that you pay the bill in full each month. I already have a direct debit set up to do this.
Meanwhile, keep the money that would have been being taken from your cheque account in a high-interest savings account. Because the credit card is interest-free as long as you pay the bill in full, you get a month's free interest on your money.
In the past I'd only ever seen credit cards as tools for getting people into debt, perhaps because ‘rate tarting’ is so widespread. This idea has made me realise they can be a useful tool for savers too.
Not all transactions can be done on a credit card — my rent, for example — but this scheme is worth exploiting for those that can. I reckon at least half of our everyday payments can be made this way. Now that interest rates are creeping upwards, it's becoming more and more worthwhile.
Needless to say, this won't help those who don't live within their means. I'm not advocating that you get yourself into debt, and you should certainly stay within your credit card limit. But you can, and should, use the system to your advantage.
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About this page
This is an entry in Stephen Wettone's weblog, published on 6 April 2005.
Summary of this entry
The phrase “rate tart” is being used more and more nowadays. But if you don't have debts, interest-free credit card offers are of little benefit. Here's a scheme that provides not interest-free, but free interest. I'm embarrassed to admit that I hadn't thought of this sooner.
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