There are two ways to play the float game. You can transfer cash from your credit card account to your checking account, called a money transfer. You can then invest that money, and place it in a high yield savings account. If you’d earn a rate of return of 6% (equity investment), and transferred $7,500 from a card with a 0% offer for 12 months that would come out to about $375 in your pocket, after the 1% transfer fee! Not many cards offer this feature, but some balance transfer cards in Canada do.
The second strategy is a little more esoteric, but valuable nonethless. If you make a purchase with a credit card the day after the beginning of your billing cycle, you will only be charged interest 21 days from the time your credit card statement was issued to you, which may be 15 to 30 days from the time of your purchase, giving you a month to two months interest free. During that time period, you’re earning interest on your money, that otherwise would have had to pay for your purchase on day 1. Debit cards don’t give you any float opportunity, as the funds are pulled out of your checking account immediately.
2. Get a Big Line
Google was financed on credit cards, so was the movie Clerks and the video game Guitar Hero. Sometimes, a credit card is a lot easier to get than a line of credit from the bank. With all the offers of cheap, unsecured credit out there, keep on accumulating cards as they come along. Financing a business investment with 0% for 12 months can be a cheap source of capital. So can a fixed rate of 9.99%. Get access to these lines of credit when you don’t need the cash, and the banks are hungriest for your business. The minute you need the cash, because you’re in trouble, is when the banks are most likely to deny your application.
3. Borrow For Less
Canada has nowhere near the number of low interest rate credit card offers as found in the United States or the U.K. That doesn’t mean they don’t exist. In fact, many Canadians have found 0% offers to consolidate their debt, pay off car loans, retail credit cards and fixed term payment loans. A low interest rate can save you thousands. Consider that the average person carrying a credit card balance has around $8,000 of credit card debt. If you go from a 19.99% interest rate to a 9.99% interest rate, you’ll be saving around $800 a year!
While low interest rate credit cards can save significant amounts of money, there are landmines everywhere you turn, such as expensive balance transfer fees and penalty interest rates that can jump 19% the minute your payment is late. Use caution, but take advantage of low rates when you can.
4. Get Something For Nothing
Why would anyone use cash to pay for their groceries, let alone a stick of gum, when you can use your credit card and have someone else finance your rewards. Whether you like cash back, airline tickets, hotel nights or movies tickets there’s a rewards program for you.
A few words of caution. Never use a rewards credit card if you don’t pay down your bill at the end of the month. The higher interest rates on rewards cards will always be more expensive than your rewards earn rate. For example, you may get 1.5% per dollar spent in rewards value. But if you revolve a balance for 3 months, it will cost you approximately 5% in interest charges. Also, try to find a credit credit card with no foreign transaction fees for all of your out-of-country travel and purchases on non-domestic websites. Again, with most cards charging a 2.5% foreign exchange fee per dollar spent, it costs more than the value of the rewards you’ll be receiving.
Finally, only enroll in a rewards program where you have a reasonable chance of earning enough rewards for what it is you want. There’s no sense in getting an airline card that requires you to spend $30,000 to get enough for a free flight, if you only spend $5,000 a year. It will take you 6 years to get enough for 1 flight!
5. Play it Safe
Credit cards have significant advantages over cash and debit when it comes to the safety of your purchases. First, if a retailer fails to deliver goods that you’ve ordered online, you can dispute the charge and you don’t have to pay your bill. In fact, your credit card company will be responsible for charging it back and collecting the funds from the retailer, not you. Pay with cash, debit or gift card, and there’s not much you’ll be able to do.
Second, if you lose your credit card, or it’s stolen, and someone uses it without your authorized consent, you won’t be on the hook for any of the charges. If you’re travelling and you lose your cash, you’re S.O.L. With a credit card, you’re guaranteed against fraudulent charges 100%!