We all know the trick. Find a credit card offering an introductory zero interest rate charge on spending and transfers and move your credit balance to it. Then six, nine or twelve months down the line, when the normal interest rate is about to kick in, do it again. That is, again find another zero percent interest credit card and again move your balance to it.
The logic behind this is that you never end up paying interest on your debt because you always have a zero interest credit card. So, a clever way to beat the banks. Or is it?
Benefits of zero interest credit cards The obvious benefit to zero interest cards, and the reason we all use them, is… well, zero interest of course! Why would you knowingly choose to pay your bank 16% or more APR just for holding your debt? The smart money is on zero interest accounts.
Zero interest credit cards are particularly useful for students who aren’t earning mega bucks and for people trying to pay off existing debt. It means that whilst you’re paying off your debt, you’re not accruing any unnecessary extra debt from the bank itself. In fact, the only debt you accrue is what you choose to spend on your credit card each month.
Pitfalls of zero interest credit cards There are a number of pitfalls to these offers. Some of the most important ones are:
Forgetting to transfer the balance when the zero interest period runs out. This can land you with hefty and unnecessary interest rate charges and perhaps additional fees or charges.
Not reading the catches and clauses. For instance, some credit cards void the zero interest offer if you make a late payment.
Another pitfall is thinking the card is giving you zero interest on both transferred debt and on new purchases. But many zero interest card offers only apply the offer to existing debt, not to new spending. Be careful about this and make sure you know exactly what you’re signing up for.
Once you transfer to another zero interest offer, you are unlikely to be granted another credit card with the same bank for a period of between 6-12 months so you won’t be able to take advantage of further offers from the same lender.
Excessively switching between zero interest cards can have an adverse effect on your credit rating.
Regarding this last point, it is generally accepted that taking advantage of zero interest credit card offers is not a bad thing in itself, but do it in moderation. Try and keep the number of open accounts to a minimum and move the balance only when the zero interest offer is coming to a close. The two golden rules are:
Never make a late payment
Never forget when the zero offer ends
If you remember these two rules then you shouldn’t have a problem reaping the benefits of introductory credit card offers. Alternative options Although everyone enjoys the zero interest offers on credit cards, there is another option to consider. Whereas it’s good to keep any outstanding debt you have on a zero interest card, it may also be worth picking one low interest card and sticking with it.
This works particularly well for people who only have minimal debt or no debt at all, and for people trying to give their credit rating a boost. Banks appreciate customers who make them money, and if you spend carefully each month and pay off your card without any late payments, having a low-interest card can really help to increase your credit rating. Paying the bank a bit each month buys you a greater credit limit and lower interest rates.
So are zero interest rate offers worth it?
In a word, ‘yes’. So long as you’re smart about it and always read the full contract. Know exactly what you’re signing up for and remember when the zero interest offer runs out. It could save you hundreds of dollars each year on unnecessary interest payments.