If you are like a lot of people, you receive 0% interest credit card promotional offers in the mail ALL.THE.TIME.
Most of the time it’s really annoying to get this kind of junk mail. Yet, sometimes you may consider the offer. Do you have a big purchase coming up that you don’t have the money for yet? Do you have high-interest credit cards that you would love to switch over to 0% interest?
I have done this a few times and have listed out some things you should know and consider when deciding to apply for one of these 0% interest cards. (NOTE: try not to rely on 0% interest if possible- try you start budgeting for these items when you can).
Here is the 411
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0% Interest Credit Cards
1. Watch out for the promotional mail you receive. Pre-approval does not guarantee full approval. You are more likely to be approved if you have a good credit score and low debt. However, Chase, for instance, has limitations on how many new accounts you can open in a 5 year period.
2. Check how long the 0% interest rate is for. Some cards have longer offers than others. A 12 month 0% interest period is good, but a 15 or 18-month period is even better. This gives you a longer period of time to make sure you get that credit paid off.
3. Read the fine print to see what happens if you are late on a payment. Often, the credit card companies will cancel your 0% interest period and your interest rate will skyrocket to the normal rate.
4. Find out what your regular interest rate will be after the promotional period. Some rates may be really high afterward, while others will offer more reasonable rates depending on your credit score.
5. Look for rewards programs that the credit card offers. Someone will have 1-1.5% fixed rates on purchases (like M&T or Capital One) while others may have 1% cash back on regular purchases but then have 5% cash back on quarterly categories.
If you have multiple cards, you can rotate which one you use depending on the quarterly categories of those cards. I rotate between my Chase Freedom and my Discover It cards (check out my comparison of my two favorite cards) to get the best cash back rewards.
Some cards will even give you a large cash bonus or airline miles bonus if you spend a certain amount of money in a given time frame. This could be a great way to do some travel hacking or get great cash back if you were already planning a large purchase.
6. If you plan to also transfer a balance, find out if you still keep your 0% interest on purchases or if you are required to pay interest during the balance transfer promotional period.
7. Finally, make sure you understand what happens if you still have credit on your card after the promotional period ends. Some card companies will charge interest from what you initially borrowed while other companies will only have you accrue interest on what is left over.
Try to pay off your card each month, especially if you are just using the card for rewards and have the money already budgeted. If not, try your best to pay off what you can each month to avoid having money left over that will get charged a high-interest rate.
0% Interest Balance Transfers
1. Find out what the transfer fee is. The standard seems to be a 3% fee. It’s paid all at once but will most likely still save you money in the long run if you are transferring from a high-interest rate credit card. Check for better fee offers though. I sometimes get offers for a 1% fee and have even seen a few cards with a 0% interest fee! Try to save the most money by finding the lowest fee.
2. Like with the 0% interest credit cards, check the fine print to see if you can have both a 0% interest balance transfer and 0% purchases. If you can’t, you will have to pick which is most important to you.
3. Another important thing to know is how long you have to pay off your balance transfer. Like the credit cards from above, this can range from 12 months to 15-18+ months.
4. Carefully consider what you are transferring. This may cause a credit hit if it is something other than credit card debt (like your car or student loans) because you are now switching from installment debt to credit debt. You may also lose certain benefits by doing this.
For instance, with student loans you can deduct interest on your taxes. You will lose out on this if you transfer them to a credit card. However, if you have 10% interest student loans and can switch them to a 15-month interest-free period (with a 1-3% fee) it may be worth it. Do your homework on it before you do this.
So, is it worth it?
Now that you have read through these important things to know about 0% interest credit cards, you can feel more confident when you get another offer in the mail. Try to budget ahead to avoid reliance on 0% interest credit cards, but even so, they can come in quite handy in certain situations. Especially if you have one with good rewards!
What is your favorite card to use? Let me know in the comments!