Make money from credit cards

Introduction

Instead of costing you hundreds of pounds each year in interest payments, it is (with careful planning) possible to turn credit cards into a fairly substantial money-spinner.

Of course, a simple way to save money is to apply for a card offering interest-free credit for a limited period and merely move the debt to another card offering the same service after a few months. This system will certainly save you money as you avoid paying interest, but it is actually possible to start earning extra money, legally, through more careful credit card operations.

Read on to discover how you can make an average of £1,000 a year through credit transfers.

The system basically involves opening a high-interest savings account (paying around 4% gross) and investing large sums borrowed from several credit cards that offer periods of interest-free credit. Clearly, the amount of money you make depends upon the amount of cards you borrow from. There are currently around 20 credit cards offering interest-free credit, but don't be greedy - never use more three or four at one time. Every credit card application leads to a check of your credit rating - if you apply for too many, you will leave a bad mark on your credit.

Surprisingly, the way to keep making money from the system without ruining your credit rating is to reapply for the same card several times. At the end of the interest period, if you cut up your card and send it back to your issuer, along with a letter closing the account, it is often possible to reapply for the same card six months to a year later, allowing you to take advantage of the same interest-free offer.

Sounds easy? Well, in theory - it is. But there are many costly pitfalls of which you must beware. For this reason, we have put together a step-by-step guide to ensure you don't fall into any traps, but successfully manage to make money from your credit.

Lesson One: Setting up your money-making system

1. Getting a main credit card

As was pointed out in the introduction, this system of earning cash seems simple, but, in practice, contains many pitfalls. Firstly, it is important to realise that most issuers will refuse to transfer money directly into your bank account. To get around this, your 'main' credit card must have a cheque payment option and no handling fees. This will be the card onto which you transfer all other interest-free credit. The cheque payment option will allow you to transfer your accumulated credit into the savings account (see point 2) more easily. You must also make sure that you will not be charged for using a credit card-linked cheque. As you are in credit, this is unlikely, but it is good practice to always ask.

Click here to find credit cards

2. Opening your high-interest savings account

Some high-interest accounts restrict your ability to access your money, and in certain cases charge you to do so. Such an account is no good to you, as any delays in the transfer of funds from this account back to the credit cards from which you have 'borrowed' could prove extremely costly.

Ensure that the account that you open allows you unrestricted, penalty-free access to your money. This is also important as you need to earn interest on a daily basis.

Click here to find banks offering high-interest accounts

3. Applying for your interest-free credit cards

As mentioned in the introduction - don't apply for more than three or four credit cards at one time! Doing so may mean you encounter difficulty in obtaining credit in other areas.

There are presently around 20 cards offering an interest-free period of six months or longer (these include Egg, Virgin MBNA, etc).

Beware: Some cards require you to make regular payments into the account, even during the interest-free period. Many banks can be set-up to pay this automatically, but in any event, it is best to make sure that you know exactly when each payment is due for each card, and always check that everything has gone as planned.

Click here to find interest-free credit cards

Lesson Two: Putting your system into practice

1. Transferring your balance

At this stage you should have obtained a 'main' credit card that crucially offers a cheque payment option and includes no handling fees. You should also have a high-interest account that allows you unrestricted, penalty-free access to your money. Finally, you will have obtained three or four credit cards offering at least six months interest-free credit.

First move the money over to your 'main' card. Don't worry; card issuers will not check to discover whether the card you are transferring money to actually has a debt linked to it. From the 'main' card, simply move the money to your high-interest savings account.

Once in the interest account, it will start earning you extra money. If possible, set the account so it repays each card debt one day ahead of the due date. Otherwise, take careful notes of when payments are due and stick to them religiously. It is imperative that you repay the total amount within your interest-free period. Failing to do so will leave you with expensive costs that will strip you of the interest you gained - and more!

2. Destroy and return your cards

When you have repaid the debt from your interest account. Cut up you credit cards and return them to the issuers. Always enclose a letter, clearly stating that you wish to close the account. Make sure you read the card's terms and conditions - these will include information on how to terminate the agreement. Closing the account will do your credit rating good as you have repaid debts and returned the card.

Repeat and repeat and repeat

Especially in cases when the credit was high, it makes sense to apply for the same card in around 12 months' time. Don't reapply sooner as your credit rating will be adversely affected if you are turned down. However, when you have destroyed and returned your first three or four cards, you can apply for another three or four and continue making money by following exactly the same procedure.

A final warning

The system described above represents a very reasonable and legal way to make money. If, however, you are not extremely well organised - you will fail! The penalties for failure are high, so think very carefully before you embark on the scheme.