My Experience with Credit Card Stoozing – Round One

Credit Card Stoozing…

I had often wondered whether I could transfer an amount off an introductory offer credit card to my offset account; or whether is was even legal to do so.

Apparently it is; and it is a great way to decrease the amount of interest you pay on your mortgage.

But what’s the catch? If you transfer the maximum amount as a balance transfer off a credit card to your offset account, you can save on the interest in the mortgage whilst paying no interest on the money borrowed (for a period of time).

Right. But… You would have to be disciplined.

It’s a trap!!

These offers are setup as a trap, to lure in unsuspecting customers who are unlikely to pay off their credit card prior to the interest free period running out.

The banks have done their numbers (they’re quite good at doing these numbers things) and have found that we are unlikely to to disciplined, and we are going to end up paying interest on these credit cards.

Why do the banks allow credit card stoozing? It’s a numbers game for the banks. Sure they will take a financial hit for those of us that take advantage of these interest free schemes; but in the grand scheme of things they ultimately make much more  money from the undisciplined credit card holders they they suck into the vortex.

So, you have to be incredibly disciplined if you want this to work for you.

Or… What I prefer… you have to set it on AutoPilot, forget about it, and enjoy the interest savings.

My Plan of Attack

So… I wanted to have a crack at this credit card stoozing scheme. So, I formulated my plan. I felt like George Clooney in an incredibly bad (and boring) Ocean’s Eleven spinoff except this way of robbing the bank is legal.

So, I started to plan ‘Stooze don’t Lose’.

Step 1: Take out a credit card with a 0% interest period.

Step 2: Transfer the credit card balance to the offset account.

Step 3: CUT UP THE CREDIT CARD!

Step 4: Setup an automatic transfer of that amount back onto the credit card account towards the end of the interest free period.

Step 5: Rinse and repeat.

MIND BLOWN! RIGHT?!?!

I’ve always thought of credit cards as being evil beasts that suck the life out of even the most frugal of us. I never thought that they could be a tool to help me on my way to financial freedom.

Now, to put it to the test. Surely something will come up in big red writing at some stage saying that what I am trying to do is illegal.

I can’t believe I’m considering this (getting a credit card).

Why do banks allow this? Surely someone is going to call the police on me if it works.

 

Everything was going swimmingly..

It’s incredibly easy to apply for a credit card.

I just clicked on the one that had the annual fee waived with an introductory offer of 0% for balance transfers for the first 12 months.

And then… I hit a SNAG!

Wow, don’t they make things difficult for you?!?!

To think that I actually thought that credit card stoozing would be easy peasy lemon squeezy… It’s actually difficult difficult, lemon difficult.

Unfortunately for me, Westpac did not ‘have an agreement’ with my particular financial institution for balance transfers.

*Lightbulb moment*

Where there is a will, there is a way.

But I have my ING and Commonwealth Visa Debit Cards, perhaps I can organise a balance transfer to them, and then transfer the money from there to my OffSet Account.

Brilliant!

Nope, Nope, Nope!!

I tried to go through this process, and ended up being stuck in the same spot as before. the lovely lady on the other end of the phone (she really was lovely) notified me that it was not possible to organise a balance transfer to a visa Debit card, as there was no balance owing on the card to be transferred.

Damn, Damn, Damn!!

I was stumped, and here I thought I’d be printing free money by now.

Disgruntled and incredibly annoyed that my little scheme had fallen flat on it’s face, I packed up my bat and ball and decided that I didn’t want to play anymore (just kidding).

So, I called up, cancelled the card, with the intention of trying again when I worked out another method.

Watch out for Round 2!

I’m thinking that two credit cards may be required for this little scheme to work.

I think I might try that with the next effort (I’m determined to make this work, as I’m committed now).

You’ve won this round banky mcbankyton. :/

Conclusion for Round 1: FAIL!

Cheers, FIER

The FIER Calculator v1.1

A little explanation about my FIER (Financial Independence and Early Retirement) calculator.

This little spreadsheet was created, as I wanted a way to track my Increase in Net Worth, until I reached such a point that I reached that magical x25 number.

If you don’t know what the ‘x25 Rule’ is, it may be worthwhile checking out the post covering it here.

But, I decided to make it more complicated than that. Of course.

I decided I didn’t actually like the x25 rule as much as I liked. This came from the fact that not every part of your net worth will give you a 4% return on investment. Especially your home.

Despite my home making up a very large proportion of my net worth, it does not (and never will) make up a large proportion of my passive income. In fact, as it stands, it is making me 0% return on investment.

How is it different?

Most of the Financial Independence spreadsheets I have seen assume a 4% return on your net worth. As discussed above, this is not the case.

For my calculator, I wanted to be able to allocate different levels of returns depending on where the capital was invested.

For example, capital that is in the share market will, on average, on the long term, have a much higher return on investment that money that is sitting in a high interest bank account.

How it works.

Saving for retirement is all about habits, and this is how this calculator works.

With my FIER calculator, you simply enter into the assets spreadsheet, on a fortnightly basis, the amounts that are currently allocated to each of your asset ‘classes’. In here as well, you enter your expected return on that particular asset.

In the liabilities spreadsheet, enter where you owe money as well as the interest rate of each of these amounts.

From these amounts, the spreadsheet will automatically calculate the estimated passive income (from your assets) and passive loss (from your liabilities) which will be displayed in the passive income/loss tab.

The last thing you need to enter is your expenses for the fortnight. These are any expenses such as groceries, phone bills, car repairs: basically anything that isn’t interest on your debts.

The calculator takes all of these figures and:

  1. Calculates a rolling 12-month average for your passive income, earnings and your living expenses
  2. Calculates how much your savings have increased for the fortnight, and how much your savings have increased per fortnight on average over the past 12-months
  3. Based upon your average rate of saving, it calculates how long (in years) it will take for your passive income to cover your living expenses.

Why 12-months?

the truth is, I wanted to create a calculator that averaged out over a shorter time-frame (say 3-months) so you could track more recent improvement in your spending and earning habits. However, some large expenses (e.g. insurances, car rego etc.) only happen once a year and not including these may give an unrealistic view of your savings habits.

I could change my opinion on this in due course, and even as I am writing this I am sitting on the fence (for example, it may help in instilling new habits). I think in future iterations there will be a function combining the two so you can compare long-term and short-term savings habits.

How do I reach Financial Indpendence Sooner?

There are two main ways that this can be achieved, and they are easily accounted for in the FIER calculator.

  1. Save more (Spend less or earn more) – either way results in a greater increase in your net worth per fortnight and will get to to FI sooner.
  2. Invest in assets that have better returns – this is important, make your savings go to work for you by placing them in places where your returns are going to be higher that the average savings account

Because my FIER calculator makes it’s estimates by your rolling average of savings; you do not have to enter your earning into the calculator to make it work. It does all of it’s calculations based upon your savings habits and increasing Net Worth.

I have not included super in my calculations.

Although Super technically adds to your Net Worth; it’s not much good to you for early retirement when it’s sitting, inaccessible in your super account. Obviously if you want to be able to retire on the income generated from your investments, you cannot access the income from your Super Nest Egg until you reach the governments Super Maturation Age.

Sure, drawing down on your capital outside of super should be balanced out by the returns on your super fund.

With governments playing around with Super Rules, it’s not something I’d be willing to bank on. Who knows what might happen to the rules surrounding your super account in the future. I expect that the rules about who can access their super, how quickly you can draw down on these amounts, and how much it is taxed will be changed in the forseeable future and I don’t want to be reliant on it as my saving grace as I whittle away my savings outside of super.

Sure, there are arguments for and against including super in your calculations. Being the ultra-conservative pessimistic bean counter that I am who is increasingly suspecting of our governments ability to meddle with our ‘retirement nest eggs’ I just would rather be safe than sorry with my calculations.

Here it is.

v1.1 of my FIER calculator can be downloaded from here. Now, bear in mind that it is a work in progress, and I am having to relearn a crap load of excel commands as I’m building it, but more features will be added as I go.

Let me know what you think. Obviously it is a work in progress and there are plenty of limitations to the calculator (taxes for example).

But, it should prove as a good starting point.

FIER.