The average American credit card user has a wallet full of credit cards, and pays interest on any that have a balance. The typical credit card user carries a balance of five to nine thousand dollars, according to various sources. With the average credit card rate at anywhere from 9-18% APR, that spells big bucks out of consumer’s pockets. Those that carry a credit card balance often jump at a 0% APR introductory rate to transfer balances and save on interest fees for six to twelve months.
Then, there are those who came from a new school of credit card use. They refuse to carry a balance, eliminating interest charges. To top off their free use of a credit card every month, which saves them money, they’ve figured out a way to make money from the credit card issuers. You know those 0% APR balance transfer offers that most of us hope for, to buy some interest-free time? Well, these financially savvy folks have figured out a way to put the 0% introductory offer to work for them, without the need to transfer existing debts. They apply for a card that offers the 0% intro rate on cash advances, take the maximum allowable cash advance, and deposit the entire amount into a high-yield savings account. The entire deposit stays in the savings account during the introductory period, minus the amount of each month’s minimum payment. This technique, popularly known as “stoozing”, became well-known a few years ago, thanks to a UK MotleyFool.com contributor by the username of “stooz”.
Stoozing has become a serious little money-maker for some. They make sure they locate the highest yielding savings account, to get the most bang for their, I mean, the credit card issuer’s buck. They may continue the cycle with credit card after credit card to keep the interest earnings flowing. They never use the savings deposit for anything other than making the minimum payment, and they never send more than the minimum payment, to keep their interest-earning principal at a maximum. They’ll pay off the first card with a new, ready, and waiting, 0% intro card just before the intro period is over on the first card to keep the process going. If a new card is not feasible, they withdraw the deposit from their high-yield savings account to pay off the credit card balance. The interest that’s left in the savings account is their profit.
A bank account is strongly recommended for stoozing deposits; the safety and liquidity of the cash advance is extremely important. It would be a mistake for the stoozer to get greedy and risk losing all or even part of the cash advance in more aggressive investments. The stock market and real estate are very volatile, especially now, and it often takes quite some time to see a profit in these types of investments. It could spell disaster for a stoozer if they put stooz money into something that could lose value in the typical six to twelve month introductory period. A federally-insured bank account guarantees that the cash advance will be safe, and offers a predictable return on the deposit.
Successful stoozing requires great attention to detail. The stoozer must be very careful to read and understand all the terms and conditions of any card they’re considering. It’s important that the particular credit card provides what they need; many cards don’t allow 0% cash advances, only 0% on balance transfers, or maybe on new purchases. Many cards offer a 0% APR on balance transfers, but charge a 3% balance transfer fee; that fee will surely wipe out any interest earnings that stoozing may bring. It’s imperative that a prospective stoozer understand what it is they’re getting into before they apply for any card. The most enticing part of any credit offer will be in big, bold letters at the top of the page, or on the front of the envelope. To get the rest of the story, you must read the teeny-tiny print at the bottom or on the back page. Only then, will you know if the card can be used for the purpose you intend.
The successful stoozer must also be very disciplined; it’s not everybody that can resist the temptation of thousands of dollars just sitting in their savings account. Spending any of the deposit is a big no-no, and only those who have the discipline to leave it there to accumulate interest should attempt to stooz. Good timing is another must; a stoozer has to be sure to pay all of the minimum payments on time, to avoid losing their 0% APR, and being assessed default rates. Credit card issuers have to make up for their “generosity” somewhere, and the 28% APR default rate is becoming quite the norm. Timing is also important when the stoozer has to set up a new intro card just before the previous one’s intro period ends. Stoozing can be tricky, and can end up costing a lot more than the stoozer could ever earn.
While there’s plenty of testimony that stoozing has earned some bucks for quite a few, it’s not a very realistic way for most of us to bring in a second income. As mentioned before, the stoozer can’t profit from stoozing if they have any other debt. It just wouldn’t make any sense for someone to deposit a cash advance to earn such a minuscule amount, when they are paying interest on a typical credit card debt. Someone with any credit card debt is much better off if they use the 0% introductory rate to transfer their balances and save on those interest fees.
It’s also difficult to profit from, even if the stoozer doesn’t have other debt. 0% introductory periods on cash advances are few and far between; it’s a rare card issuer who would even allow it. They usually want you to run up new purchases or transfer a balance to get that sweet 0% APR. So, finding a card with a 0% rate on cash advances, to begin with, will be the first hurdle to overcome. The second obstacle is finding the next card that will allow you to transfer your balance from the first card without a fee. What’s the average “high-yield” savings account in the U.S. earning these days? Somewhere between 2-4%? Add the typical 3% balance transfer fee to the equation; the entire interest earnings, and possibly more, is completely wiped out.
Successful stoozing is also limited to those with excellent credit. Most card issuers only extend the 0% introductory to people with great credit; a FICO score of about 700 is the typical minimum for someone to qualify with many card issuers. The stoozer normally maxes out their credit card, so they can earn interest on the largest amount of cash possible. This brings their credit-utilization ratio to 100%, causing their credit score to drop. Someone who tries stoozing, when their credit score is hovering around 700, may see their credit score drop dramatically with one maxed out credit card. This might even bring a credit score low enough to not qualify for any more 0% introductory rates, making it impossible to sustain stoozing. Though it is possible for someone with impeccable credit to keep the game going for some time, it’s just not going to work for the average consumer.
The 0% introductory offer is popular with consumers, and profitable for credit card companies. They invest in a consumer’s debt by offering an interest-free period to get their business to begin with. Then they sit back and hope that the credit card user fails to make their payments on time, so they can apply the default rates. They are pretty sure that the credit card user will not be able to pay off the entire balance (and it’s likely to be an even larger balance) before the end of the promotional period, which will provide them with a ready-made, big debt to collect interest on. They’ve even learned to outsmart the tricky stoozers, by charging the balance transfer fee. The credit card industry is big business, it didn’t get that way by accident. I wish good luck to anyone who thinks they can profit from stoozing, but be aware of who you’re up against. One little mistake and they’ve got you.