0% credit cards are “back” and arguably better than ever. Technically they never left, but now they’re being extended to a wider range of consumers with good-to-excellent credit.
USA Today recently ran a story asking – legitimately – whether 0% credit cards deals really meant free money. Some of the best interest-free deals available to good and excellent credit consumers now last anywhere from 6 to 12 or even 18 months!
OK, so interest-free deals have upped the ante considerably as the economy continues to crawl back to life. But are they really as impressive as they’re made out to be?
The answer is yes…and no.
Here’s the deal: 0% interest credit cards are NOT free money. In fact, they’re one of the most dangerous cards out there for running up debt, since the interest-free mentality gives consumers the opportunity to run up a balance without immediate consequence. There’s no interest, so no urgency to pay it back, right?
No credit card is interest-free forever. There are charge cards that are interest-free, but owners of those cards (usually business owners) have to pay back their balance in full at the end of each month. Credit cards are different in that they allow a cardholder to pay down their balance in increments over time. Sure, there’s a minimum payment, but in the beginning it’s often just a fraction of your total balance.
0% interest cardholders with a spend now, pay back much later mentality will inevitably run into a wall of debt, and when interest rates kick in it’s going to be extremely hard to come back from. That’s the quintessential danger of a credit card, and it’s one of the reasons that nearly half of us have more credit card debt than savings. (Statistics courtesy of Bankrate.com)
OK, but are 0 percent interest credit cards – and the credit card issuers that advertise these too-good-to-be-true offers – completely at fault here? Of course not. That’s on us.
Interest-free credit cards make no illusions that they’re a one-swipe stop for free money. Credit card fee transparency has improved greatly since the Credit CARD Act of 2009 was passed, and any applicant or cardholder has access to exactly when they can expect to see their interest rate jump from none (0 percent) to some (anywhere from 10 percent and up depending on the card and your credit worthiness).
So now that the dangers of a 0% interest credit card have been spelled out, they can’t be worth all the fuss and recognition they receive, can they?
Actually, yes, since they represent some of the very best credit card offers available to consumers looking to pay down debt.
0% balance transfer credit cards can save consumers carrying debt a substantial amount of money on interest. The process is simple; simply apply for a 0% balance transfer card, request a balance transfer once you receive your new credit card, and pay down your old debt interest-free for the amount of time advertised by the card.
There are a couple of catches. First, there’s usually a fee attached to such a transaction, often 3 percent of the balance you’re transferring. (One balance transfer card, Chase Slate®, offers no balance transfer fee for balances transferred within the first 60 days of cardmembership.) The second catch is that making a late payment can disqualify you from your new card’s 0% introductory fee.
Essentially, pay the fee – a reasonable price to pay to eliminate interest fees – and maintain on-time payments to make the most of 0% interest credit cards.
To sum it up, 0% credit cards are safest when used for balance transfers. They’re useful for new purchases, too, but the risks of building up too high a balance to pay back when the clock rings midnight should make any consumer hesitant about spending “freely”.
Remember, when it comes to 0% credit card offers, there’s no such thing as free money.