Warning! This “Money Hack” takes a great amount of discipline and requires that you do not normally carry balances on your credit cards. Do not attempt this hack if you aren’t certain you can see it through to the end.
There are two simple ways to approach making money by using your credit cards. One of which is the obvious “Use your credit card for everything; pay off the balance every month; collect cash back” method. That works well, but I do not spend enough to really take advantage of that method; our credit card rewards are usually under $100 for an entire year, considering that we get back about 1% on our credit card purchases. The other method is to already have the proper amount of cash on-hand for the purchase, but make the purchase through a no-interest credit card offer.
As you know, we’ve had serious problems with our washing machine and need to replace it. Now that our unexpected tax refund is on its way, I’ve decided to go ahead and purchase a new washing machine and take advantage of both a 10% off President’s Day discount and a 12-months no interest offer on my Lowe’s credit card. Normally I would not recommend signing up for a credit card to take advantage of a deal like this, but it worked for me in the past, so I’ll leave that up to you.
We’ve done our research on the washers there and I expect that with sales tax we would have spent about $1,500 on a washer and 15″ pedestal before the 10% discount, so that is the amount I’ll put into savings. With the 10% discount, I will owe about $1,350, allowing me to snowflake $150 to savings for “free.” Considering that my ING account is earning 3.4% APR and compounds monthly, that is 0.283% growth monthly. For ease of calculation and for lack of a reliable crystal ball, we’ll assume that number is static for the 12 months it will take to pay back the credit card.
Expected Earnings
Assuming that I will owe $1,350 after sales tax, the credit card purchase will require 12 monthly payments of $113 (rounded up). After plugging in these numbers into Excel, we get the following results:
By making this purchase on a 12-month no-interest store credit card offer and squirreling the cash balance away into a higher-interest savings account, I will be able to gain almost $31 over the course of a year. In contrast, my usual credit card reward of 1% would have only given me $13.50. By having the cash ready up-front and using a store’s promotion to my benefit, I will earn $17.48 more. And if you consider my extra snowflake of $150, my savings is now $180.98 richer than if I had just put the balance on my credit card and paid it off like any other normal month.
Like all money hacks, this is not without at least a minor amount of risk. There are a number of factors that could crop up over the course of a year that could make it hard to pay the credit card. There is also a better-than-average chance that my savings account APR will change this year. I only recommend implementing a hack such as this once you have your discipline in check and a decent amount of emergency savings already banked away.
Happy Money Hacking!
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