Saving money on your credit card​

• Points and rewards

  Used correctly, it’s possible to make money from credit card incentives like points and cashback. Some card issuers offer higher incentives than others - for example, a higher percentage of cashback on purchases.

  You’ll often see signs in shops saying certain types of card are not accepted. That’s usually the cards that offer the best incentives, like a high cashback percentage on purchases. That money has to come from somewhere. And in many cases, the card issuer bills the merchant. The result is some merchants will refuse to accept that type of card - so they don’t take the hit. But ask yourself this; What about other cards that are accepted but still give incentives back to the cardholder?

  In those cases, the merchant still foots the bill - initially. But where do you think the merchant makes up their margin? On the price of the items in their shop. YOU are footing the bill for other people’s rewards. It’s already hidden in the sale price of the items you buy. So, only you can decide whether a rewards-based card is the right option. But just remember, you’re realistically footing the bill either way.

  As with any credit card, think hard before signing up. In particular, you’ll need to work out whether the rewards outweigh any charges. For example, if there’s a £150 annual fee and you’ll only use the card sparingly, the rewards may add up to less than the fees.

  Used alongside interest-free periods, it’s possible to double the money-making potential of credit cards. 

• Interest-free periods

  There are credit cards on the market with two-year interest-free periods. Sometimes even more. Just do a quick search and you’ll easily find a list of all the latest offers. However, “up to” is the operative phrase here.

  Let’s say you sign up for a credit card today and it has an interest-free period of “up to” 24 months. Tomorrow, you buy a laptop for £1,000. As long as that £1,000 is paid off before your interest-free period ends in 24 months, you’re golden.

  But let’s say you put another £1,000 item on your card the following month. That item’s interest-free period is only 23 months. If you buy another item the month after that, it’s 22 months, and so on.

  So make sure you circle the date in your calendar so you know when your interest-free period ends. Every time you’re thinking of buying an item on that card, work out how long you have left to pay it off before interest kicks in.

  Remember, once that interest does kick in, it’s applied to the entire balance of your card, regardless of when you bought each item. So if your 24 months are up and you have an outstanding balance of £5,000, you’ll begin paying interest on the full £5,000 right away. Cards with long interest-free periods often require a minimum payment each month. And they’ll usually require a direct debit for that payment.

  So remember these three things:

  • You'll need enough in your bank to account to cover the minimum payment each month
  • If you only pay off the minimum each month, you're balance won't be paid off by the time interest kicks in
  • Making extra payments will keep your balance under control

  But how does this help you make money? Well, let’s say you use that card for your normal expenses. Bills, groceries - any regular costs you don’t currently put on a credit card. Take the money you’d normally spend on these expenses, and put it into a savings account that pays a healthy interest rate. Even if it’s only minimal, like 0.15 percent, you’re technically making money!

  At the end of your interest-free period, take the money from your savings account to pay off your credit card. You’ll be left with a tidy sum from the interest - all of which is free money!

• Using both

  So, we’ve looked at rewards-based cards. And we’ve looked at interest-free periods on cards. Each one has its advantages in terms of putting money back in your pocket. But what would happen if you used both together?

  It’s unlikely you’ll find a card that pays rewards and has a long interest-free period. It’s far more likely you’d need two separate cards. So in that case, you might have a card with an interest-free period that you use for regular expenses. And then your rewards card comes out for the bigger purchases - like a new TV. While this could allow you to use each card to your advantage, a word of warning.

  The more credit cards you have, the easier it can be to lose track of your spending. It’s also really, really important to consider your credit file. Taking out too many lines of credit in a short space of time can affect your credit score. So, as always, borrow responsibly and spend responsibly. And remember, this is not an exhaustive list. There may be other options on the market that we haven’t covered here. So as always, do your own research. 

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