When Zero Percent Can Zap You
We’ve all seen the offers on the Internet and on television. Credit cards with zero percent interest. Then, finally, after months or even years of hoping, we see the postman deliver that signature white envelope with the giant 0 printed on the front. Our very own zero percent interest rate credit card. We hurry to fill out our pre-approved form and we transfer our other credit card rates as quickly as we can. We sprint to the mailbox to mail the offer back and we go to bed that night positive that we’re going to save hundreds or even thousands of dollars on interest alone!
And then reality hits.
Three months later, or maybe six months, or if you are extremely lucky, a year, we open our credit card bill, still feeling a little giddy at beating the system and getting this incredible offer, only to see there is interest after all. And it’s high! Is yours 18 percent? How about 20? Do I hear 24? It’s true. There is no such thing as a zero percent fixed rate credit card. They simply do not exist. If they did, how would credit card companies make any money? If you haven’t already fallen into this trap, here are a few helpful tips for avoiding the same mistake that millions of unlucky people already have.
First off, make sure you read every word of a credit card offer you receive. Federal law requires that credit card companies print a full disclosure on the back of every credit card application. Simply flip the application over and you can see if there are any annual fees attached to the card and, more importantly, how long the introductory rate lasts for, and what the rate turns into once that grace period is over. Unless you honestly think you can pay off your entire balance before the intro rate ends, having three months or six months of interest savings doesn’t really add up to much over the long haul if you end up stuck with a rate similar to the one you already have.
The best thing that you can hope for is what they call a duel rate credit card. Many cards are now offering a card with two rates instead of one. The first rate is for new purchases only and the second rate is only for your balance transfers. You can even have the new purchases rate be variable and the balance transfer rate be fixed. Even with the best offers, however, the 0 percent offer isn’t a fixed rate on balance transfers. Many times, these cards will offer you six months at zero percent on balance transfers and then the rate rises to 3 percent or 5 percent and locks. This is a great offer if you can get it, but you need to take the other rate into account, too. If the rate on new purchases is 20 percent, you probably don’t want to take that card. What the credit card company is counting on is that you’ll take the card, transfer your balances over and then if there is an emergency or if you just can’t help yourself, you’ll use the card for new purchases, as well. And most times, the credit card company is exactly right.
Zero percent offers can set the heart of even the most hardened credit card user all aflutter. But you have to read the fine print to see if the card is really what it is cracked up to be. Don’t let the zero fool you into making a financial mistake you’ll regret for years to come.