Do You Need a 0% Intro APR Credit Card?

Advertiser Disclosure

How many tempting offers for 0% APR credit cards have you received in the last few weeks? Between online offers and the direct mailing stuffed into our mailboxes, it seems as if the options are endless. But, do you really need a 0% APR credit card? Can you save money by using one? The answers to those questions are not exactly straightforward, and depend on your unique circumstances.

In today’s credit card market, 0% APR credit cards are hardly rare. What was once a unique offering is now quite commonplace, and 0% cards are the most common type of credit card available.

So, on to the biggest question…

 

Can a 0% APR credit card save you money?

Let’s examine a few scenarios to see how this would work. The first thing to find out is how long the introductory rate will last. Some 0% APR cards offer a 6-month introductory rate, others may extend this period to up to 18 months. Obviously, the longer the 0% rate lasts, the more money you will save, especially if you are using the card as a balance transfer option and trying to pay off a higher balance credit card. Once the rate rises, which could be up to 20% APR, or even higher in some cases, your savings will start to become debt if you are still carrying a balance.

[Looking for a travel rewards card? Check out our post with the Top 5 Travel Rewards Cards with 0% APR.]

 

Consider the Evidence

Let’s say you transfer $2000 from a higher interest rate credit card to a 0% APR card that offers 12 months interest free. Your previous card was charging 17.99% APR. Over the course of 12 months, assuming you were to pay off the balance entirely, you would have a monthly payment of $184, and end up paying a total of $201 in interest fees.

So, in this scenario, you would save $201 by using the 0% APR card. Obviously, the higher the balance and interest rates are for your current card, the more you will save by switching to a 0% APR card.

If you pay only the minimum balance on the credit card, which is likely to be around $40 per month, then you will have only paid off $480 during the 12-month period, and be left with a balance of $1520 at the end, which is subject to the higher interest rate.

[Don’t forget to check out our page with the Best Balance Transfer Credit Cards.]

 

Potential Downsides

If you make it a habit to frequently switch credit cards to keep opening up 0% APR cards, this could adversely affect your credit score. One factor that goes into calculating your credit score is how many times your credit report is pulled, and how often. So, doing this often could hurt you. If you do often switch, it is important to close out any credit cards that you do not use, so that you do not have too much available credit, because banks look at this when they assess your credit.

Also, if you do not pay off your entire balance during the 0% APR period, then you have to carefully consider what the interest rate will be after the introductory period ends. If the interest rate will be higher than what you are currently paying, then you might not end up saving any money if you do not pay off the card in full before the 0% period ends.

 

Conclusion

The example we used is only an estimate. Your balance transfer amount could vary, depending on your credit limit. Keep in mind that there will be balance transfer fees, usually 3-5% of the balance (on $2000, 5% would equal a fee of $100, which comes out of the savings you would see). In general, a 0% APR credit card is a great option for someone who is disciplined and can afford to pay off the entire amount before the introductory rate expires, but may not be the best option for someone who cannot commit to that payment schedule.

Also, if you plan to keep the card for longer than the 0% period, then you must compare the nitty gritty options—interest rates, annual fees, penalties, and perks, and make a choice that is going to suit you for the long term.

Banks love to offer 0% introductory rates, because they often make money not only on the balance transfer fees, but, since most people do not pay off the full amount during the introductory period, they end up making plenty of money on the interest you pay at the higher rates.

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