If you are looking for a way to save money on interest or pay off debt faster, you may be tempted by the offers of 0% APR credit cards. These cards promise no interest charges for a limited time, which can sound like a great deal. But are they really worth it? And what are the pros and cons of using them? In this article, we will explain what 0% APR credit cards are, how they work, and what you should consider before getting one.
What is a 0% APR credit card?
A 0% APR credit card is a card that offers no interest charges on purchases and/or balance transfers for a certain period of time, usually ranging from six to 21 months. The 0% APR is considered an introductory or promotional rate, and you will switch to the card’s regular APR once the promotion ends. The 0% rate may not apply to everything — some promos are for new purchases only, others may only be for balance transfers and some offers may cover both new purchases and balance transfers. Cash advances rarely qualify for 0% offers. Since not all 0% offers are the same, it’s important to read the terms and conditions to make sure you understand the offer.
How does a 0% APR credit card work?
A 0% APR credit card works by allowing you to avoid paying interest on your purchases and/or balance transfers for a set period of time. For example, if you get a card with a 0% APR for 15 months on purchases, you can buy something with the card and pay it off over 15 months without paying any interest. This can help you save money on interest and spread out the cost of a large purchase.
Similarly, if you get a card with a 0% APR for 15 months on balance transfers, you can transfer a balance from another card with a high interest rate to the new card and pay it off over 15 months without paying any interest. This can help you pay off debt faster and save money on interest. However, you may have to pay a balance transfer fee, which is usually a percentage of the amount transferred, typically 3% to 5%. You may also have to complete the balance transfer within a certain time frame, usually 60 to 120 days from account opening, to qualify for the 0% rate.
What are the pros of a 0% APR credit card?
A 0% APR credit card can have several benefits, such as:
- Save money on interest: If you are carrying a balance on your credit card each month, you may also be paying a high interest rate. As of November 2023, the Federal Reserve listed the average credit card APR at over 21%, and according to Experian, the average credit card balance was $6,365. Using these figures, if your card’s minimum monthly payment were your interest plus 1% of your balance, and that’s all you paid each month, it would take around 25 years and cost over $10,500 in interest to pay off your debt. A 0% APR card can help you avoid interest charges for a while, which can save you money and help you pay off your debt sooner.
- Finance an unexpected or emergency purchase: If you need to make a large purchase that you can’t afford to pay in full right away, such as a car repair, a medical bill, or a home improvement project, a 0% APR card can help you finance it without paying interest. This can give you some financial breathing room and flexibility to pay off the purchase over time.
- Consolidate and simplify your debt: If you have multiple credit cards with high interest rates and different due dates, a 0% APR card can help you consolidate them into one card with one payment and no interest. This can make it easier to manage your debt and avoid missing payments or paying late fees.
What are the cons of a 0% APR credit card?
Despite their obvious perks, 0% APR cards also have some downsides and risks that you should be aware of before you apply, such as:
- The APR doesn’t last forever: Enjoy it while you can, because once your 0% introductory period is over, it’s over. The 0% interest only lasts for the duration of the introductory period, and once it ends, the card will revert to its regular APR (the exact rate is determined based on your creditworthiness). This regular rate may not be low, so be careful about carrying a balance if you’re nearing the end of your introductory period. You may end up paying more interest than you expected or can afford.
- Balance transfers are not always included: Just about every 0% APR offer is for new purchases made with the card. Some of these introductory offers also feature 0% on balance transfers, but not all do. Read the terms closely and ensure balance transfers are also eligible for the 0% rate before you pull the trigger. Otherwise, you may end up paying interest on your transferred balance, which defeats the purpose of getting a 0% APR card.
- You may still have to pay a balance transfer fee: Even if your card offers 0% on balance transfers, you may still have to pay a fee to transfer a balance from another card. This fee is usually a percentage of the amount transferred, typically 3% to 5%. For example, if you transfer $10,000 to a card with a 3% balance transfer fee, you will pay $300 in fees. This can reduce the amount of money you save on interest and increase the time it takes to pay off your debt. Some cards may waive the balance transfer fee for a limited time, but this is rare and usually comes with a shorter 0% period.
- Your credit score could be negatively affected: Applying for a new credit card can temporarily lower your credit score by a few points, as it results in a hard inquiry on your credit report. This is not a big deal if you have a good credit score and don’t apply for too many cards in a short period of time, but it can hurt your chances of getting approved for other credit products in the future. Additionally, transferring a balance to a new card can increase your credit utilization ratio, which is the percentage of your available credit that you are using. A high credit utilization ratio can lower your credit score, as it indicates that you are relying too much on credit. To avoid this, try to keep your credit utilization below 30% on each card and across all your cards.
- You may be tempted to overspend: Getting a 0% APR card can give you a false sense of security and encourage you to spend more than you can afford, especially if you are using it for new purchases. You may think that you have plenty of time to pay off your balance without interest, but if you don’t have a plan and a budget, you may end up with more debt than you can handle. Remember that a 0% APR card is not free money, and you will eventually have to pay it back, with interest if you don’t pay it off in time.
Should you get a 0% APR credit card?
A 0% APR credit card can be a valuable tool for saving money on interest and paying off debt faster, but it is not for everyone. Before you apply for one, you should consider your financial situation, your goals, and your habits. Ask yourself these questions:
- Do you have a large purchase or a high-interest balance that you want to pay off over time without interest?
- Do you have a realistic and feasible plan to pay off your balance before the 0% period ends?
- Do you have enough income and savings to cover your monthly payments and any unexpected expenses?
- Do you have the discipline and self-control to avoid overspending and adding more debt to your card?
- Do you have a good credit score and history that can qualify you for a 0% APR card and a low regular APR?
If you answered yes to all these questions, then a 0% APR card may be a good option for you. However, if you answered no to any of these questions, then you may want to think twice before getting a 0% APR card. You may end up paying more interest, hurting your credit score, or getting into more debt than you can handle.
Bottom line
A 0% APR credit card can be a great way to save money on interest and pay off debt faster, but it also comes with some risks and drawbacks. Before you apply for one, make sure you understand how it works, what are the pros and cons, and whether it is right for you. Compare different offers and read the terms and conditions carefully. Have a clear plan and a budget to pay off your balance before the 0% period ends. And most importantly, use your card responsibly and wisely.
I hope you found this article helpful. If you have any questions or feedback, please let me know. 😊
Source:
(1) 11 Best 0% APR and Low Interest Credit Cards of February 2024. https://www.nerdwallet.com/best/credit-cards/low-interest
(2) 13 Best 0% APR Credit Cards of February 2024 | Bankrate https://www.bankrate.com/finance/credit-cards/zero-interest/
(3) Best 0% APR Credit Cards of January 2024 | U.S. News. https://money.usnews.com/credit-cards/zero-interest
(4) Best 0% APR Credit Cards of January 2024 | CreditCards.com https://www.creditcards.com/zero-interest/
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