Stoozing

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Stoozing is the common name given in the UK to the act of borrowing money at 0% (typically on credit cards) and earning interest on the money and paying it back before the 0% period ends. In effect, it is free money for little work as long as the borrower is good with paper work and can keep up the minimum payments required. Stoozing can also be viewed as a form of Arbitrage.

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[edit] How to stooz

Credit cards in the UK will typically offer 0% interest on transferred balances for 6-12 months for newly opened card accounts. Credit cards in the United States have similar offers. In both countries, cards may also offer a similar period covering purchases. A stoozer will use an introductory period balance transfer at 0% (or whatever low rate has been offered) for the purpose of transferring their new credit card limit into a high-yield savings account rather than an existing debt. A balance transfer is usually taken to mean: a payment made by the credit card issuer to a third-party on behalf of a borrower in settlement of a debt (the balance to be transferred) the borrower has with that third-party. A stoozer may crucially have no indebtedness, so any payment made on their behalf can be used in reality to preserve their savings account balances elsewhere - at no (or low) interest cost to them. Several devices exist to maintain (and indirectly build) offsetting saving account balances in this manner:

- Credit card cheques (checks) issued to the borrower allow them to directly credit themselves rather than pay down an existing debt immediately (which may have some time itself remaining of any introductory period)

- A balance transfer from a credit card with no (or smaller) debit balance to create an intentional credit balance on the account which the borrower can seek to recover either gradually (eg day to day purchases) or instantly (eg cheques issued by the secondary card to the borrower)

- A direct credit made to the personal bank (checking) account of the borrower, with the knowledge of the issuer, at their request. (This has become colloquially known as making a Super Balance Transfer - or sometimes 'SBT')

[edit] Offsetting and stoozing

An alternative to the pure form of stoozing is debt-offsetting itself - typically on large secured debts like mortgages. Here the stoozer carries real indebtedness and their objective is not to generate profits but simply interest savings in whatever form their loan agreement will allow. Many mortgages now permit overpayments by giving the borrower the opportunity to draw at the same rate of interest later within the (declining) limits set out. Other mortgages are genuine offset loans that sweep borrowers' entire savings balances with the lender and 'off' of their loan account. In either case, the effect is the same.

[edit] Stoozing in practice

While the simplest form of stoozing will involve only a single debt-swap, with one account directly repaying another, successful stoozing relies on being able to muster several transferred balances at the same time in order to generate usefully large profits (or savings). Stoozed balances are constantly running down, as every card requires monthly servicing payments of (typically) 2 percent of the reducing balance throughout its introductory period as well as needing to be repaid at the end of this period. But, as the availability of introductory card offers varies significantly (that is, offers change), effective stoozers must research opportunities and apply for new credit cards speculatively as they arise - without guarantee of success - rather than simply when one introductory period ends.

Effective stoozing also relies on making effective applications for further credit. Each application made gives rise to an enquiry of the personal credit history of the borrower, which is shared between individual card issuers and the commercial credit reference agencies (CRAs) maintaining such files. In the UK the main CRAs used are Experian, Equifax and Callcredit. In addition, regardless of whether an application for credit is successful, the fact that a search will have been made on a person's file is itself recorded and made known to future lenders. To maximize the chances of success, therefore, applications should ideally not be made too frequently.

A more basic approach to stoozing is just to apply for a single credit card at a time and to do so at least six weeks before any introductory period ends - giving sufficient time if accepted for the issue of a new card to transfer a balance off the original card - even if that is a few weeks before the original card's introductory period would have ended. Unless the stoozer sticks with this basic single application method, however, expiration dates from differing introductory periods on different cards will inevitably become staggered and overlap with time. In addition the amount of credit available from individual cards can vary greatly which complicates the practice of matching debts. The stoozer may concentrate, therefore, on one method for building their balances (e.g by use of super balance transfers) and quite separate methods for repaying them - only rarely employing an actual balance transfer in its precise sense to swap debts. The objective always remains the same however - to preserve or (re)build stoozed balances.

Due to the different features available on different cards only the commonalities of stoozing with credit cards have been described. Secondary strategies that take advantage of specific features arguably justify the term 'stoozing' also. These can include:

- Using one credit card (if it allows) to make repeated balance transfers during the introductory period to meet the minimum payments on another card requiring them - thus maintaining a slightly higher balance average throughout the period on the former card.

- Using a credit card which offers 0% for a period on purchases (but not necessarily on balance transfers) to build up debt over the introductory period that can be transferred subsequently (sometimes referred to as 'slow' stoozing)

- Using a (rarer type of) credit card that gives interest free periods on balance transfers, in addition to normal purchases, to repay debt on an expiring card - then repaying this debt in full as a credit card account settled in full each month attracts no interest. For a brief period, the original debt is effectively carried beyond the end of its 0% rate.

The popularity of stoozing, deliberately taking advantage of cheap borrowing where there is techincally no need to borrow, has increased steadily in the UK in recent years as the availability of 0% borrowing has itself gone from being almost unheard of before the year 2000 to becoming a established feature of almost every new credit card currently (as of 2006) offered in the U.K.

[edit] Examples:

An initial balance of £3000 borrowed over 6 months with 2% monthly repayments averages about 95% (£2850). At a 4.00% pa after tax savings rate that generates a profit of £57 (about 100 USD). An initial £8000 borrowed over 12 months with an 2% balance transfer fee (£160) and 2% monthly payments averages about 90% (£7200). The net profit is then about £288 - £160 or £128 (about 200 USD). As these figures show, effective (that is profitable) stoozing depends on holding of several active stoozed balances simultaneously and carrying these over successfully by making several applications for credit every year for a number of years.

[edit] History of stoozing

The word "Stoozing" came into existence from posts on the Motley Fool UK discussion boards in early 2004. Many people were earning money on 0% deals before 2004, but one discussion board contributor, Stooz, was prolific and so it was once referred to as "doing a Stooz". The word "Stoozing" appeared to work, so it stuck. The term "rate tart" is also sometimes used.

In the United States, the concept gained a similar following.

[edit] External links

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