Are you tired of losing money to high-interest credit card rates? Then it might be time to consider a 0% interest credit card. With these cards, you don’t have to pay any interest on your purchases for a specific time period, giving you a greater degree of control over your finances.
This article explains how a 0% interest credit card works and how you might take advantage of that introductory period.
What Is a 0% Interest Credit Card?
When financial institutions advertise 0% interest or 0% APR credit cards, it is important to know what is being offered. These are cards with an introductory period – often ranging anywhere from 15 to 20 months – where your account will not be charged interest on your principal or purchases. Once this introductory period is over, these cards will revert to the standard interest rate outlined in the card terms and conditions.
Because these cards feature a zero-interest window, many consumers sign up for a 0% interest or 0% APR credit card with a specific financial goal in mind. In the next section, we’ll discuss some of the more popular reasons to consider adding a new credit card to your wallet.
5 Reasons to Apply for a 0% Interest Credit Card
Wondering how you might benefit from this introductory period? Countless consumers turn to 0% interest credit cards each year to pay down debt or make a major purchase less of a financial burden. In this section, we'll explore some of the more common reasons to add that new card to your wallet.
Pay down a high-interest credit card
One of the most popular uses for a 0% interest credit card is paying down outstanding debt. For a small fee – typically 3-5% of your balance – most credit card companies will allow you to transfer the balance of an existing card to your new, 0% interest card. This makes it easier for people in debt to chip away at their credit card balances since they won’t have to pay interest on the accrued debt.
Pay off a one-time purchase or expense
If a major purchase or medical expense is on the horizon, then a 0% interest credit card might make your life a little easier. Instead of using your regular credit card and paying for the items purchased plus interest, you can stretch your payments out over time during the introductory period.
For example, if you spend $500 on a card with a year-long 0% interest rate, you can spend that year paying off the $500 without having to pay extra for interest if you pay it off during that year.
Pay for a special event
Like a big one-time purchase, special events can be a great time to apply for a 0% interest credit card. You already know that you will be making a large number of purchases in a specified amount of time. Furthermore, special events - like weddings - are already super expensive and can cause great financial strain. You don’t want to make matters even worse by spiraling into more debt because of high-interest rates.
For a small fee, most credit card companies will allow you to transfer the balance of an existing card.”
For example, say you are planning a wedding for June. If you open a credit card in January with a 0% interest intro period of 15 months, you can start making purchases on that card for more than a year from the date of account opening. You won’t have to worry about accumulating interest on them until the following April.
But remember: 0% interest credit cards are a way to minimize debt, not postpone it. An easy way to determine how much to pay each month is to divide the total amount charged to the zero percent card by the number of months. For example, a $1,000 card at 15 months would be paid in full by a monthly payment of $66.67.
Pay off personal loans
In some situations, borrowers can also initiate balance transfers for more than just credit card debt. You can also use them to get ahead on car loans, college loans, and even home equity lines of credit. Depending on your outstanding balance – and the terms of your card – this may allow you to close an existing loan and knock out the last few payments interest-free.
Before you consider this approach, however, it is important you discuss this process with a representative at your bank or credit union. Most credit card companies tightly regulate when and where they allow these types of transfers to take place. In some cases, you may not able to transfer balances within the same financial institution.
As an emergency fund
In an ideal world, we’d all have enough money saved up to cover emergencies or unforeseen expenses, like a car repair or an airplane ticket. The good news is that 0% APR credit cards are a great safety net if and when you find yourself up against these types of bills.
Most credit card companies have the option to “rush” a card to an approved applicant, ensuring you have the account you need when you need it. Be careful, though – once you open the card, the clock starts on your 0% interest period. The longer you wait to apply the charges, the fewer months or billing cycles you’ll have at the introductory rate.
What to Know Before You Apply
Even if you have your heart set on a 0% interest credit card, there are still several factors that may impact your card’s terms and rates. Here are a few things to keep in mind as you research the right card for you.
Your credit score
Your credit score is a significant factor when applying for a 0% interest credit card. Different cards will have different credit score requirements. Still, you generally need to have pretty good credit to qualify. Most experts recommend you wait until your credit score is 670 or higher before you even considering applying for a 0% interest credit card.
Also, be aware that your credit score will drop a few points every time you apply for a credit card. Do your research to see what cards you are most likely to qualify for, to avoid applying for a bunch and damaging your credit score.
The introductory period terms
The most important factor in your decision is how long the intro APR period lasts. You obviously want to find the card with the longest intro period possible to give yourself more time to pay off the balance. It is possible to find cards that offer an intro period of 15-20 months, but as we continue to deal with the aftermath of the COVID-19 pandemic, the average intro period length has dropped to 10-12 months.
As always, read the terms and conditions very carefully before agreeing to a new card. Some credit cards will negate the zero-interest period if the card holder is one day late with a payment. Some even have the provision of going back and charging interest from the date the card was issued.
The fees involved
Always read the terms and conditions before applying. Some cards come with an annual fee, although it may be waived for the first year. This fee can be worth it if the card offers rewards that you take advantage of, but many people pay a fee for a fancy card while not taking full advantage of the rewards.
Be aware of the rewards you can get with each card and whether they will make the annual fee worth it. If you are opening a 0% interest credit card with plans to initiate a balance transfer, be sure you know how the transfer fees – typically 3-5% - will affect your account balance. Also, make sure you know how much you will owe if you are late with a payment.
The credit card perks
Choosing the right credit card perks often requires you to do a little digging into your finances. For example, you could see great travel rewards cards and be tempted, even though you only travel a few times a year. In this instance, you should look for a card that offers cash back rewards based on transactions you frequently make, such as money back on grocery purchases.
Applying for a credit card with an introductory 0% interest period is a great way to save money. This card can help you pay down existing debts or avoid interest charges on large purchases or expenses.
As long as you understand the terms and conditions involved and stick to a responsible repayment plan, you should consider applying for a 0% interest credit card to help you get and keep your personal finances under control.