Key takeaways
- A 0% APR credit card can be a great financial tool, but there are debt traps to be aware of when using one.
- Always make the minimum payments on your credit card to avoid consequences like late fees, damaged credit and penalty APRs.
- Pay attention to when the intro period ends and have a plan to pay your balance off before the end of the promotional period.
According to a recent Bankrate survey on credit card debt, 47 percent of Americans are carrying credit card debt from month to month. When you can’t pay your balance off quickly, it can lead to a cycle of debt.
If you aren’t able to pay your balance in full each month, you might turn to a 0 percent introductory APR credit card. These cards let you avoid interest charges on your credit card balance for a promotional period of time — often between 12 to 21 months. The 0 percent interest rate will apply to either new purchases, balance transfers or both.
The best 0 percent APR credit cards can help you finance a large purchase, get out of debt and avoid interest charges that could threaten your financial security. But for every person who successfully uses a zero-interest credit card as a life raft, someone else may end up making the kind of error that lands them in a debt trap.
Here’s what you need to know to avoid the pitfalls and use a 0 percent APR card to your advantage:
How to take full advantage of your 0% APR credit card
How you maximize your 0 percent intro APR credit card will depend on how your specific card is structured, but there are still some general guidelines you can follow to make sure you get the most out of your card. Here are a few:
Transfer and pay down your debt while saving on interest
Transferring your debt from a high-interest credit card to a credit card with a 0 percent introductory APR offer is one of the most common ways to use that type of offer. Usually. Consolidating debt in this way is done with a balance transfer card — a type of credit card that’s geared toward those who want to pay down credit card debt. Since the best balance transfer credit cards offer a year or longer of zero interest on transferred balances, you’d have time to avoid interest charges and pay off as much of your credit card debt as possible.
Current credit card interest rates are sitting at a high 20.71 percent, so let’s say that you had two credit cards with that ongoing APR. Let’s also say that one of the cards was a balance transfer card with a 0 percent introductory APR period that lasted 15 months and a balance transfer fee of 3 percent. Here’s how much you’d save if you moved a debt of $5,000 from your regular credit card to that balance transfer card:
| Debt to pay off | Monthly payments | Time to pay off | Interest/fees paid | |
|---|---|---|---|---|
| Card with 15-month intro APR offer | $5,150 (principal balance + BT fee) | $300 | 17 | $150 BT fee, $12.23 in interest |
| Card with no intro APR offer | $5,000 | $300 | 20 | $946 in interest |
With the 0 percent APR credit card, you’d save $783.77, even with the 3 percent balance transfer fee factored in. Not only that, but you’d become debt-free three months faster by using the balance transfer card. If you’re able to raise your monthly payments, you can even avoid interest altogether by paying off your balance within 15 months as opposed to 17 months.
To make sure a balance transfer credit card is right for you, use Bankrate’s balance transfer calculator and credit card payoff calculator to see how much you could save.
Split a large purchase into several monthly payments
Putting a large purchase on a 0 percent intro APR card means you won’t have to worry about a big upfront hit to your savings.
When you make a purchase with a 0 percent intro APR card, you’re essentially giving yourself an interest-free loan — as long as you can pay off the purchase in full before the promotional interest rate expires. This means your large purchase should still be affordable enough that you’re able to set aside enough money each month to pay it off in full before the end of your introductory period.
If your 0 percent APR credit card also offers benefits like purchase protection or extended warranties, you’d benefit even more from using your card for a purchase.
Understand your card’s long-term value
Many credit cards with robust 0 percent introductory APR offers tend to not have as many perks that would allow for cardholders to get long-term value out of their cards. Balance transfer credit cards in particular can be pretty slim when it comes to ongoing rewards and benefits.
But not every card with a 0 percent intro APR offer falls into this category. Many robust rewards credit cards also come with intro APR offers — although they might have shorter intro periods than those marketed as balance transfer cards. These cards might offer:
- Category spending rewards
- Consumer protections and benefits
- Travel insurance and travel-related perks
Looking at multiple types of credit cards — whether that’s cash back cards or points-earning cards — can help you find a card that offers more value than just its intro APR offer. Just make sure you’re still able to pay off your purchase or balance transfer in the introductory timeframe.
Bankrate’s take:
If you do get a credit card with a strong introductory APR offer that you know won’t have much long-term value, that’s fine too. It’s better to prioritize paying down and avoiding debt than it is to prioritize earning credit card rewards. You can always keep it for minor purchases or cancel it if you’re paying an annual fee.
Debt traps to avoid with 0% APR credit cards
Zero-interest credit cards can be excellent financial tools — but they can also enable you to slip further into debt. Here are four ways to avoid accumulating more debt when using 0 percent intro APR credit cards:
1. Don’t get the wrong card
Many 0 percent intro APR credit cards offer their promotional APRs for both purchases and balance transfers, but some only carry a promotional offer for one or the other — not both.
If you get a card that only has a balance transfer offer, for example, you won’t be able to make purchases without accruing interest. If you do make purchases with the card, that interest won’t stop accruing until you pay off your entire balance, including the debt you transferred. The same situation applies if you try to make a balance transfer on a card that’s only offering a promotional APR on purchases.
To avoid this debt trap, check to make sure you get the right promotional APR card for your needs.
2. Don’t rack up debt you can’t afford
Zero-interest cards can sometimes feel like free money. After all, it’s easy to make excessive purchases on the card and tell yourself you’ll pay off the balance later.
But if you don’t pay off your balance in full before the zero-interest period ends, your credit card debt will begin to accrue interest — making it even harder to pay off your balance in the future.
How do you avoid this pitfall? Don’t buy anything you can’t afford to pay off before the 0 percent intro APR period expires, and come up with a debt payoff plan to pay down any balance you transfer from another card.
3. Make at least the minimum payments
Even though your 0 percent intro APR offer won’t charge interest during the promotional period, you’ll still have to make the minimum payments each month. If you don’t, you’ll face several consequences, including:
- Late fees. Most credit cards charge late fees when you fail to pay your bill on time.
- Damaged credit. Late payments typically get reported to credit bureaus. Not only does that drop your credit score, but these negative marks can stay on your report for up to seven years.
- Penalty APRs. Some card issuers assess penalty APRs after one or more late payments. Penalty APRs are often much higher than the original APR that comes with your card, which could push you further into credit card debt.
- Loss of intro APR offer. If you don’t make the minimum payment, the card issuer can cancel your intro APR offer. If that happens, you’ll immediately begin accruing interest on any outstanding debt.
To avoid damaging your credit, getting charged late fees and having higher APRs, always make on-time payments on your credit cards, even if you can only make the minimum payment. If possible, pay more than the minimum so that you can lower your debt as much as possible before the promotional period ends.
4. Pay attention to when the intro period ends
What happens when your 0 percent intro APR period ends? Once your promotional interest rate expires, any remaining balance on the card begins to accrue interest at the regular interest rate. If you forget when the intro period ends, you lose the opportunity to save money by paying off your balances in full before your credit issuer begins charging interest.
To avoid this debt trap, make a plan ahead of time on how to pay your balance down or off before the end of the promotional period. Create a budget to see how much you have to pay each month to eliminate your debt before the intro period ends. And mark your calendar or create a phone reminder for the end of the promotional period so you can make a new plan if it looks like you won’t be able to pay off your debt in time.
The bottom line
Credit cards that offer promotional interest rates can be excellent tools if you know how to use them, but they have their pros and cons just like other types of credit cards. By avoiding the pitfalls of 0 percent intro APR cards and making a plan to pay off your balance in full before the intro offer expires, you could save a lot of money on interest charges.
However, using a zero-interest credit card without a plan could cost you. If you are concerned that a 0 percent intro APR card might be more dangerous than useful for you, consider other options. A low-interest credit card, for example, could also help you save money on interest charges while allowing you to pay off a balance over time.
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