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A zero interest credit card offer can appear as a deal without a downside on the surface, but don’t be fooled. You need to choose your zero interest credit card offer wisely and carefully manage your use of the card to get the benefit. Without mindful selection and use, this so-called “great deal” could end up costing you.
Choose the Right Card
Credit card companies offer incentives to prospective customers because right now it is a highly competitive market for good borrowers. If you have a good credit score, you will be receiving a zero interest credit card offer. They are not all equal. Consider the following as you evaluate a card:
- balance transfer - If a card does not allow you to transfer an existing balance, then that card does not have the primary beneficial feature of such offers. A zero interest credit card offer with balance transfer lets you take an existing credit card balance at a market interest rate and, in essence, create an interest-free loan.
- length of the zero interest - Because the market is competitive, cards will vary in the length of time the zero interest rate is offered. Don’t be tricked into getting a short-term low interest rate when other cards offer a longer low-interest period.
- fees and penalties - If the card has an annual fee, a balance transfer fee and penalties for late payment, those expenses could wipe out the benefit of low interest.
The typical zero interest credit card offer comes with the option to transfer a balance from an existing card. The credit card companies are fully aware that you will do this and create an interest-free loan for yourself. Most charge a fee between $15 and $75, based on a percentage of the amount transferred.
Make the best use of the transfer option by paying your monthly bill in full and on time and by paying off the balance during the zero interest period. Failing to do this can erase the benefit of the card.
Pay Attention to Payments
There are two areas in which payments can make a zero interest credit card offer a detriment to you. First, most cards have a late-payment penalty which immediately erases the zero percent interest and replaces it with a higher rate, sometimes as high as 29%. Second, if you maintain a balance past the zero percent interest rate period, you are once again paying a market rate for the money borrowed on the card.
Don’t be lulled into a late payment or dragging payments out. Either case can cost you and make that zero percent credit card offer more expensive than the card you left.
Use the Purchase Option
In addition to transferring a balance, a common zero percent credit card offer will have a new purchase option, as well. This means you get zero percent interest on new purchases. Again, it is like giving yourself an interest-free loan.
Be certain that your card has this feature before making new purchases. If new purchases are at market rates, it could easily offset the savings you enjoy on transferred balances. Also, be certain to manage the payment period for the new purchase. The zero percent interest rate will expire at a set time, and you will be paying a market rate on new purchase balances.
Plan Your Exit
Don’t be fooled into accepting a zero percent credit card offer then putting your payments on “auto pilot.” Months before the zero percent interest expires, be thinking of what you are going to do with current balances. Can you pay them off? Are you happy with the new rate of interest you’ll pay after the initial period? Can you transfer the balance to another zero interest card?
Careful use of the zero interest credit card can save you money, but don’t be fooled into thinking those savings are guaranteed. You need to work it to win.
