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Save thousands on your mortgage with your credit card

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Credit cards aren't necessarily evil. In the right hands, not only can a credit card give you access to free credit - minus, of course any annual or reward program fees applicable - they can for some home owners offer the ability to save tens of thousands of dollars off their home loan interest bill without making a cent in extra repayments.

Before you start spending big on the end of financial year sales, make sure you have the basics down pat so your credit card works for you and not vice versa.

Free credit

credit cards credit card use credit card to pay mortgage

It's easy to forget what a credit card actually is - a lending facility with, in most cases, an interest-free period in which to make your purchases.

Put simply, credit cards can be an interest-free loan. But to enjoy all the advantages and avoid the disadvantages you have to understand how they work.

Interest-free-period credit cards normally offer up to either 44 or 55 days interest free on purchases. Some cards can offer up to 62 days interest free.

Of course, this doesn't mean you have up to 62, 55 or 44 days interest free on every purchase you make.

The total comes about through the monthly billing process (generally 30 days), plus the time between the end of your monthly billing period and the due date, which is generally 25 days if you have, say, a 55-day interest-free card.

So if you make a purchase later in the monthly billing cycle, you'll have fewer interest-free days.

If you repay your balance in full by the due date, no interest will be charged to your card.

To help you make your payments on time, ensure the statement period starts a couple of days later than your payday to allow for weekends and public holidays.

Some banks allow you to change your statement period to match your pay cycle. It's worth asking your credit card issuer if it can do this.

The biggest trap with these types of cards is not repaying the balance in full by the due date or using them for cash advances.

Interest Savings

If you're a home owner with, say, a $300,000 mortgage, an interest-free credit card could save you more than $5000 in interest off your home loan.

Working on the principle that interest on your home loan is calculated on your daily balance - so the more you can put in on day one, the more you can save - the strategy of living off your credit card during the interest-free period and paying your entire salary into your home loan can make efficient use of your money.

On payday your entire salary goes into your mortgage offset or redraw facility and in the process immediately reduces the amount on which you are charged interest.

Of course, you'll still need to pay ongoing living expenses.

To cover these, you use a card that offers you the maximum amount of interest-free days - even better, one that gives you reward points too.

You can then use this card to cover your everyday expenses, while making sure you draw down on your home loan to pay off your credit card with an interest-free period.

The biggest rule with this strategy is not to spend beyond your means on your credit card and to avoid paying interest charges.

You must repay your credit card before the interest-free days end.

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Effie Zahos is editor-at-large at Canstar and a financial commentator. She is the author of A Real Girl's Guide to Money: From Converse to Louboutins, and a regular money commentator on TV and radio across Australia. In 1999, a background in banking Effie helped kickstart Money, which she edited until 2019. Effie holds a Bachelor's degree in economics.
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