Tempting though it may seem, there are pitfalls in attempting to overleverage your credit cards using one of the many tactics exposed’ both in popular finance books and online. The reality is that in most cases, lenders have identified and considered any loopholes before the average consumer has heard about them, and if they have not already done so, are sure to correct them quickly.
For example if you swap cards repeatedly so as to keep within 0% interest offers, you risk being penalised by the credit agencies and eventually you will no longer be able to get any cards at any interest rate, or qualify for mortgages or loans.
One essential piece of advice is to ONLY use credit cards for cash-back provided you are not charged any interest. The temptation to use the credit card to gain cash from a cash point can be high, yet by not paying back the card in full at the end of each month, this can be an extremely expensive method of borrowing.
Some advice sources will tell you that cash-back on a credit card, paid off monthly in full is the same as cash-back on a debit card, but that simply is not true; no debit card on the market charges you for getting cash back with your for the simple fact that you are in fact accessing your own funds rather than extending your credit with a lender.
There are other theories that state that since many credit cards lend new customers money at 0%, you can easily borrow this money and put it into a savings account with as high a rate of interest as is available.
The theory is that you will then be earning interest on money you have acquired effectively for nothing and is similar to the idea that you can borrow money as an overdraft from the bank and swap large amounts between accounts in different banks to look as if you have a large income going in and going out.
This is supposed to boost your credit rating – but beware: when considering further credit, lenders are primarily concerned with whether or not payments were made on time rather than the size of transaction moving to an from accounts.
In general it is inadvisable to see interest free credit or 0% interest offers as free loans – these offers do not last forever and if you miss a payment you will actually accrue more interest than if you had a standard rate of interest in the first place!
With many card providers offering incentives to spend you can expect, with normal usage, to receive some reward for your spending – however, spending vast amounts of cash in order to qualify for free gifts, air miles or other similar incentives is not a good investment!
As with any type of credit, borrowing on a credit card can give you access to funds when you need them most as long as spending is kept within affordable limits it can be an extremely useful way of taking care of your outgoings but it needs to managed carefully.