How 0% Credit Cards Can Cost You Money

The allure of 0% Credit Cards can sometimes override the logical decision making that needs to take place before transferring the balances of your credit cards to a 0% interest credit card.

0% credit cards exist because credit companies make money from them, otherwise they would be no more. Do not be fooled, they are doing you no favors. The 0% interest draws the people in and often times distracts them what may be worse credit card terms then they currently have with their own credit cards.

Often times 0% credit card offers are used by people transferring other credit balance with higher interest rates over to the card with 0% interest.

Here are a few tips when deciding whether a 0% interest credit card is right for you to transfer balances onto.

  • The 0% Interest Will End: The 0% is only an introductory rate.  The introductory period is usually only 6 months long, sometimes a year.  After this period ends the standard terms of the credit card will apply.  You must educate yourself with the terms of the credit card so you do not put yourself in a worse position after 6 months.  Here is a quick calculation you can do to loosely determine if it may make sense to transfer your credit card balances to 0%.  Figure out the average interest rate of the credit cards you currently have a balance on.  If the average rate is lower then the interest rate that will apply after the 0% intro period than it is probably best to stay with what you have.  I say that is a loose calculation because in order to get an exact figure for combined interest rates you need to calculate in the balances.  But that quick calculation will give you a good general idea if it will make sense.
  • The exception to having a higher interest rate after the intro period is if you can pay large portions of the balance down while in the 0% introductory period.  This can help get you ahead a little bit because all the money you pay will be applied to the balance and not the interest. If you plan on only making the minimum payment through the 0% introductory period, or purchasing more stuff at 0% interest causing your balance to increase, you will most likely put yourself in a worse position if the interest rate is higher at the end of the introductory period.
  • Do not miss a payment: Many times credit card companies have terms in their contract stating something to the effect of if you miss a payment or are delinquent on a payment your 0% interest rate could end immediately.  This could be bad news if you transfer large amounts and then cannot make the payment on the credit card.
  • Transfer Fees: Not all credit card transfers are free.  You need to know if there is going to be a fee to transfer the balance from one credit card to the new zero interest credit card.  This fee can be enough money to make the whole thing not worth it.

When it comes to 0% interest credit cards they can be a tool to help you, or a trap that will hurt you.  Education is the best weapon to arm yourself with.  Do not get distracted by the allure of the 0%, that is how you will get yourself in trouble.

Look over the terms of the credit card, break down the figures of your own debt load, run some calculations to determine if transferring your balances is going to make financial sense for you.

If you want to see a list of 0% cards, click…  0% interest credit cards.