If you Stooze, you can’t lose!(?)

For the first time in almost 15 years, I’m was without a salary for a month (October) and with nursery fees kicking in and holiday spending – money was tight. It’s not the end of the world – just a cash flow challenge but it has given me the opportunity to take advantage of an old hobby of mine, STOOZING!

Changing jobs, being out of work, investing in something (new company/business/house/car…) an be challenging. It happened to us with a change in jobs, recently and no salary for me in October and lots of other spending and I didn’t feel like selling any of my assets to cover a short term cash flow position and I don’t want to use my overdraft; so I took up a kind offer for “free” money in a return of my old stoozing days.

For those of you who don’t know; Stoozing is where you borrow money cheaply (maybe through a 0% for 20 months credit card transfer offer) and stash that money away somewhere it can earn interest for you (like your offset mortgage, savings accounts or if you are feeling lucky, the stock market). If you can make 5% interest and pay 0% for the money, then borrowing £10,000 could be worth £500 a year. It’s a sort of carry-trade or arbitrage that everyone can do. Even if there is a 3% balance transfer fee it can make a lot of sense (and money) for you.

Some good posts about stoozing can be found here and here and here. Meanwhile Monevator has a good guide to cards that offer a good snooze.

The offer and acceptance

The kind people at Barclays have been at me for ages to take their free money and I decided to oblige them recently. It’s a quick and easy process. I already have one stoozing card with £4,000 on it and in the past I’ve had up to £40,000 stoozed when my offset mortgage was fixed at 5.25% – oh happy days – so even the 3% balance transfer fee looks cheap. Barclay’s are willing to give me £8,400 for 20 months for free – I just need to repay 2.25% a month and everyone’s happy. Let me repeat that – Barclay’s are giving me up to £8,400 for free – no charge, no cost, no problem – for 20 months.

What a huge amount of money. That is actually more than our good car cost – and I thought that was a lot! So, £8,400 is what Barclays think I can spend today and pay back in 20 months time – I hope that they are right!

Too good to be true?

You might be thinking, that just sounds too good to be true, what’s the catch? How can a company lend money out for nothing – what sort of business model is that?

If a company like QuikQuid or Wonga can’t make a business out of lending for interest, what hope can someone offering free money have?

I can understand the scepticism, why give out free money? But my thinking is that the credit card companies are happy to dole out free money as they are hoping – nay, betting – that you fail to repay and that you are trapped with them forever. After the 20 month teaser, you’ll be paying maybe 20% APR on your debt. And if you are the sort of person who has accumulated a lot of debt (by living beyond your means) then you’ll only get temporary rest bite from this cycle and view the new “free” money as yours to spend! To mitigate against this risk you should have a savers mentality and retain the ability to repay the loan upon demand or at the end of the term. Sticking it into your (offset) mortgage is a perfect solution. How much risk you take is up to you – using your new-found stoozing money to gamble (crpyto, horses, crypto-horses or 90’s fashion) is probably not a great idea but there are other ways to make/lose money.

I would like to think that I am disciplined financially and will have the wherewithal to repay when needed. So, for me it’s a no-brainer way to make a bit of money. Barclay’s are happy to lend me up to £8400 and I might take up to £7,500 (unfortunately, I don’t have more debts). Assuming that I can make 5% on that cash (possibly through RateSetter – where you can get a £100 sign-up bonus using this link) that’s £625 over the 20 months. Or stick it in the stock market, top-up your ISA or SIPP and use future income to pay off the debt. I believe that relying just on salary alone for cash flow is a risk and having different funds where you can dip in / dip out of is a great way to take advantages of investment opportunities. A bit of stoozing money is a great boost to my cash position while the debt can just sit on the books until I pay it off again when it is due.

It’s a bit of a case where having money makes you more money. And an example of how leverage can work for you. Borrowing money to invest can turbo charge your returns and making money from nothing by stoozing is low hanging fruit. If you feel braver, then using spread betting or CFDs to invest is one way to do that. I’m in two minds about starting it again myself. I am using Trading212 and have found them to be good to date. I could use the £7,500 as a 5% deposit on a £150,000 purchase of the FTSE100. The carry cost for something like a FTSE100 tracker is about 3.3% per annum or £5,000 but the dividend alone covers that at about 4.5% or £6750 meaning a profit of £1,750 – any change in the index is yours to keep (or pay back), so essentially it’s a bet on the markets rising with £1,250 thrown in. Upside is 10% move up in the FTSE + dividends – carrying = £16,750 (£15000 + £6,750 – £5,000) profit. But the downside of a 10% drop = -£13,250 (-£15,000 + £6,750 – £5,000). It’s high risk and not for orphans or widows! Also, if the market suddenly drops, you could face a margin call – crystallizing your losses and wiping you out!

A better introduction to Leveraged Trading can be found at 7 Circles. Please do your own research before losing your own money!

Anyway, that’s a little off topic; I’ll just stick to the stoozing for now – putting money into ISAs/LISAs and once the company is running smoothly, I’ll look at going more exotic.
If you do choose to stooze – be careful, arbitrage may look nice on paper but debt is real and it may destroy your credit rating! Also, leverage can work both ways – it’s an easy way to lose all your money (and more!)

Have you any Stoozing schemes going on – been burnt by it in the past or used that money for anything special – feel free to share!

Thanks and good luck, GFF