The term ‘stoozing’ is slang used to describe taking a loan out with 0% interest, investing this money and taking the interest earned as profit before returning the loan. This curious term actually originates from the name of an Internet forum user who started discussing this technique in early 2004.
Credit card companies in the UK often offer a balance transfer with 0% interest for 6-12 months to attract new customers. A balance transfer is usually associated with debt repayment to a third party, but a ‘stoozer’ uses a variety of legitimate techniques to redirect the balance transfer to one of his or her own savings accounts with a high rate of interest. The loan is then repaid and the interest money kept.
There are a variety of ways to do this. Credit card cheques issued to the borrower allow them to directly credit a savings account. A direct credit transfer goes straight to the borrower’s current account; from there they can redistribute the money to a savings account. A slightly more roundabout route to achieving this effect can also be done with credit cards that offer 0% on purchases. Normally the credit card charges are applied at the end of each month, but rather than paying off the debt the same amount of money is instead paid into a savings account until the end of the 0% interest period. It’s important not to spend more than you would do normally with this system otherwise the whole saving process becomes counter-productive.
Once you have the money in your account the sooner it is in a savings account the better. Examples of good savings accounts for stoozing are instant access ISAs. Using on-line banking helps you to keep a close eye on your accounts and makes the whole operation easier.
To maintain the use of the credit card you must repay around 2% of the outstanding balance each month. Don’t be fooled by the 0% label: it only refers to the amount of interest on the loan that you are taking out. It’s crucial that these payments are maintained otherwise you might lose your 0% offer.
Stoozing, in its simplest form, just involves one account paying into a savings account. However, to maximise the profit some people implement a system where several accounts with 0% interest on loans pay into one large savings account. Stoozing can be potentially quite lucrative but it requires a lot of attention and careful money management.
Image credit: 401(K) 2012