I have been a freelance writer for more than ten years. In other words, I have learned to live with uncertainty when it comes to when my income will come in. As a result, I’ve learned to live with debt from time to time. Therefore, I’ve become pretty skilled at how to take advantage of the 0 percent interest period on credit cards. Having done so, I’m happy to share what I’ve learned about the pros and cons of these promotional periods on credit cards. Also, below, we will take a look at whether the federal rate cut on interest makes these deals more accessible or not.
What is the 0% Interest Period?
The 0% interest period is usually an introductory offer that comes with a new credit card. In other words, you don’t usually get this deal from an existing credit card (although rarely one will offer it to current customers as a promotional deal.) Instead, you apply for a new credit card and, if you qualify, get the zero percent interest period for the specified amount of time.
The zero percent interest period may apply to any or all of the following:
- Balance Transfers
- Cash Advances
In order to take advantage of the 0 percent interest period, you typically have to have good credit. The better your credit score, the better the terms of the deal. For example, with a great credit score, you might qualify for one year or more of zero percent interest. With lower credit, you might only qualify for a six-month zero-interest period.
Here Are The Things to Look Out For
If you want to take advantage of the 0 percent interest period by applying for a new credit card, then you should look out for the following things:
- What does the zero percent interest cover (for example, purchases or balance transfers)?
- Are there any additional fees (such as balance transfer fees)?
- How long does the zero percent interest period last?
- Do you earn rewards of any kind on your zero percent interest purchases?
- Most importantly, what is the new interest rate when the zero percent period is over?
That last one is critical in planning out how to take advantage of the 0 percent interest period. For example, let’s say that you get 0% on balance transfers for six months. You decide to pay the balance transfer fee to take advantage of that 0% interest period. However, you were originally only paying 14.99% interest on that balance and when the zero percent interest rate is up, this new deal jumps up to 28.99% interest. Is that a good deal? Unless you can pay off the entire balance in that six month period, probably not.
Benefits of the 0% Interest Period on Credit Cards
This doesn’t mean that the zero percent interest period isn’t advantageous, because it often is. It can be especially helpful during times when income payments are insecure. For example, if you have seen a dramatic increase in income due to COVID-19, then you might find yourself struggling to pay for basic necessities like food. In addition to taking advantage of any programs available to assist you during this time, you might want to apply for a zero-interest credit card for purchases.
If you can’t pay for food, you can put it on that credit card, and delay making the payments until the zero percent interest period is coming to a close. Just remember that you do have to pay that money back eventually and that if you don’t do it in a timely manner, then you might accrue greater interest costs down the line. Use this option to your advantage, not to your own detriment.
Tips for Taking Advantage of the 0% Interest Period on Credit Cards
Here are some of the top tips to review before you decide whether or not to take advantage of the 0 percent interest period on credit cards:
- Review all terms carefully. Make sure you know exactly what you are getting into.
- Make smart choices. It is all too easy to let fear motivate our financial decisions. Think ahead and consider whether or not this is your best option for both the short-term and the long-term.
- Shop around. You have options for credit cards with different terms, especially if you have a good credit score. Don’t take the first one that you see. Instead, get the best deal for your unique financial needs.
- Stick to a budget. Just because you have access to this “free money” for a period of time doesn’t mean that you should go on a spending spree. Limit your purchases to those that are necessary.
- Make a repayment plan. Create a plan that will allow you to repay this debt in full before the 0 percent interest period is over. Stick to that plan, making the payments necessary throughout the period to remain in good standing while paying down as much of that debt as you can.
- Use balance transfers wisely. If you choose to take advantage of a 0 percent interest period for balance transfers, do the math to make sure that doing so makes sense. Consider the fees. Think about what your repayment plan will be.
- Utilize rewards to your advantage. If you can get a cashback credit card with a 0 percent interest period so that you can earn cash on purchases with no fees, then you’re setting yourself up for a good situation. Even if you can’t get rewards, be sure to learn about the credit card’s benefits to make the most of it.
How Does The Fed Rate Interest Cut Affect Credit Cards?
You may have heard that the Federal Reserve recently announced an emergency rate cut that impacts credit card interest rates due to the COVID-19 situation. Does this mean that you will be able to take advantage of 0 percent interest rates with more ease? Unfortunately no.
While the federal rate cut does mean that credit card interest rates will decrease a little bit, the amount won’t be significant. Moreover, it certainly won’t bring your existing credit cards down to zero percent. Instead, most likely, you will see a small 1% decrease in the existing rate on your current credit cards. For example, your APR might decrease from 21.99% to 20.99%. While every little bit counts, this isn’t enough to significantly impact your debt.
In other words, if you owe money on credit cards, then you should keep paying that debt off as much as possible. If you can take advantage of the 0 percent interest period on a card to make paying that off easier, then do so. Go in with a clear head and a plan in place.