The Real Deal for Zero Percent Credit Cards
Everyone has seen offers for zero percent credit cards. These cards may charge no interest on the purchases you make or offer zero percent interest for balances you transfer from another credit card. It’s hard not to wonder if these zero percent credit cards can really be a good deal.
The fact is that they can be, but only if you follow all the rules. These card issuers are in business, so they need to make money. The way they make money from these offers is to give a great deal - with hidden strings. It’s the attached strings that tend to trip up most borrowers.
One of these strings is the limited-time offer. Most credit cards offer the zero percent interest only during the first few months. Then, the rate suddenly jumps to a higher APR, which may even be higher than the interest rate on your old credit card. The short-term rate doesn’t cost the credit card company very much, but the new higher interest rate may cost you a lot.
Another string that many companies add is required transactions. You could be required to make a certain number of purchases or cash advances each month in order to qualify for the special zero percent rate. If you don’t meet these minimums, your interest rate shoots up. Even worse, the cash advances may come with a fee.
Then there are the penalty strings. Make just one late payment, go over your credit limit, or bounce a payment check, and your interest rate could suddenly go up to 20% or higher.
Another string is attached to the zero percent interest rate when it applies only to transferred balances. Most cards will apply your payments to the lower interest rate balance first. If your transferred balance is at zero percent and your new purchases are at a higher rate, any payment you make will be applied first to the zero percent part of your balance. Meanwhile, interest is added to the other balance and it continues to build.
There are always risks involved, especially with a deal that seems to be too good to be true. The trick is to study the fine print and make sure that you have a plan in place to enable you to avoid the pitfalls. There is a way to make zero percent interest rate card deals work for you.
First of all, you need to avoid adding to your debt, at least on the zero percent interest rate credit card. Don’t use it for anything beyond the balance transfer or minimum requirements. Then, make all your payments on time. If you are late on any payment that is reported to the credit bureaus, then the zero percent credit card company will have an excuse to raise your interest rate. Finally, keep track of when the special zero percent interest rate period ends. When that time is up, you need to have either paid off your entire balance or have a place to transfer that balance to that has the lowest interest rate possible. If you are realistic about zero percent interest, then it can be a real deal for you.