Have you received one of those offers for a zero interest credit card? They now seem to be back in vogue after about a two-year absence. Some of these are interest-free for as long as a year. The credit card companies like them because they’re a way to entice people who don’t pay off all their balances each month or who just want to reduce the interest rate on their existing credit card debt.
A zero interest credit card can be a good deal if you use it correctly. However, before you accept one of these offers, there are some things to consider.
You may not get it
First, just because you are offered a zero interest card doesn’t mean you’re going to get it. While the credit card issuers prescreen before sending you an offer, they want people who pose the smallest risk of default. This means you will most likely need to have a great FICO credit score–well in the 700s – to qualify for a zero interest balance transfer rate credit card.
You’ll be watched
The credit card company will watch your behavior during that zero interest APR period. If your credit slips, it may hit you with a relatively high interest rate once your introductory offer expires.
The card you choose may come with a sign-up bonus in the form of miles or reward points. However, keep in mind that these bonuses lose their value if you start charging unnecessarily just to earn those incentives.
What’s the APR?
Make sure to check out what the APR (annual percentage rate) will be on that card when you do have to start paying interest. If it’s higher than your current cards, it may not make sense for you to use that new card once the introductory offer expires. This is especially true if you revolve balances.
Your credit score could take a hit
You may not be aware of this, but your credit score takes a small hit whenever a credit card company pulls your credit report to see if you qualify for a new card. If you get a new card, is also shortens the average age of all your accounts, which may also lower your score. And when you close an account because you signed up for that new credit card, your amount of credit available will be reduced, which can also lower your score.
The best way to use a zero interest balance transfer credit card
Most financial experts say that the best way to use a zero interest rate card is to transfer a huge debt from an existing credit card to the new card and then pay it down during the introductory period. However, you do have to make sure that the math works in your favor. Most credit cards will charge a balance transfer fee of around 3% of the amount you are transferring. Be sure to keep this in mind if you’re moving a high balance to the new card. Also, make sure you pay off your debt or reduce it a lot before your introductory period is up. If not, you will be paying interest and maybe even at a higher rate than what you had with your original card.
An alternative to balance transfers
Transferring your credit card debts to a zero interest card is at best a partial solution if you’re heavily in debt. You could reduce the amount of your debt to some degree but you probably won’t be able to pay off all of your credit card debt before your zero interest offer expires. This is where we can help. Our debt settlement experts will negotiate with your credit card providers to reduce your debt and get you a payment plan you can afford. And we charge nothing until you approve your payment plan, which makes us a no-risk solution.
I am an associate at National Debt Relief, which is a Debt Consolidation Company that has helped thousands of Americans facing credit card debt problems. We help with debt settlement, debt management, and other debt related financial crisis' facing consum