Borrowing money and earning interest at the same time might sound like a contradiction, but that’s the idea behind a personal finance strategy known as “stoozing”.
As saving rates remain competitive and credit card providers continue to offer lengthy 0% interest deals, savvy consumers are using the technique to make their money work harder.
We spoke to credit rating and personal finance expert Dan Kellett, director of lending and analytics at car finance company Carmoola, who explained what stoozing is, how it works, and weighed up whether it’s a smart money move in today’s financial climate or not.
How does stoozing work?
“When credit providers set up products to bring in new customers they often offer 0% introductory rates, which creates the opportunity to lend with a credit card without paying any interest for a set period of time,” says Kellett.
For example, a credit card might offer 0% interest for up to 12 months on purchases.
“Stoozing is when you borrow on that 0% interest credit card, and then offset that against a savings account somewhere,” he explains.
What are the benefits of doing this?
You can maximise interest earnings by spending on a 0% interest credit card while diverting your actual cash into high-yield savings accounts.
“If you are able to manage your finances appropriately, you can make interest on the savings account while not having to pay interest on the money that you are borrowing,” says Kellett. “Then at the end of the 0% intro period, you take money from that savings account to pay off that credit card, and hopefully you will have made some interest in the savings account.”
Are there any risks with stoozing that people need to consider?
“Stoozing is an effective way to make some money, however, it doesn’t come with zero risk,” says Kellett.
If you miss a payment, you could lose the 0% promo offer, messing up your entire stooze.
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“If you get to the end of that introductory period and you’re not to able to pay everything back, maybe because you’ve had to dip into that savings account for something else, then you would have to start paying interest on that credit card,” says Kellett.
“Missing payments could also impact your credit file.”
In addition, aggressive stoozing could cause lenders to view you as a higher risk.
MoneySuperMarket’s website warns that opening multiple cards, carrying large balances and making repeated credit applications may affect how future lenders assess you.
Who is it most suitable for?
“In order to get a credit card on these introductory rates, you will probably already need to have a reasonable credit score in the first place, so stoozing would be more suitable for someone who’s already had a good track record of managing credit,” says Kellett.
He adds that stoozing tends to be more suitable for someone who has a reasonably consistent income.
“You need to be confident that you will be in a position in 12 or 24 months’ time where you can make that final payment, so I think some element of stability in personal finances is also important,” says Kellett.
How can people get started with stoozing?
“The first step would be to look at what credit products in the market are available to you,” says Kellett. “You will a need a savings account and a 0% credit card to get started.”
He notes that the amount of 0% intro credit card deals on offer can be affected by what is going on in the wider economy.
“If you’ve got an economy that is growing well and unemployment is relatively low, that’s when you tend to find lots of these 0% credit card offers because the credit providers are trying to fight for your attention,” explains Kellett.
“However, in periods where the economy is maybe taking a slight downturn or unemployment is slightly higher, that’s when some of these products might be removed for customers.”
Having a clear plan is crucial.
“Have a plan of how you are going to start to use the credit card for your everyday spending which allows you to be very diligent about putting that additional money aside into the savings account is very important,” says Kellett.
What are some alternative methods to stoozing?
“I think it depends if you already have some money that you want to get return on. If that’s the case, then ISAs and savings accounts are always a good approach,” says Kellett.
If that’s not the case, he recommends downloading a budgeting app.
“There are lots of great budgeting apps which help you set aside a small amount of money every month that can very quickly increase and build up to a little bit of nest egg,” says Kellett.
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“I think stoozing is a valid way to manage different financial products in order to create some value; however, it is not straightforward,” concludes Kellett. “I think it requires a good understanding of the financial products and a lot of diligence in the way that you track your own spending.”