0 APR Credit Cards: Everything You Need to Know

Editorial Note:

Updated: November 25, 2022

So, you’re interested in 0 APR credit cards. This could be a very smart idea. A 0% APR card means you won’t pay interest on your balance transfers, new purchases, or both. This interest-free period can be as low as 6 months to as high as 21 months. We’ve listed some important facts about 0 APR credit cards below.

Fact #1: You can get either a 0 purchase APR or a 0 balance transfer APR card. It’s rare to get both.

You can get a 0% APR card on new purchases only, or on balance transfers. There are a small number of cards that offer both: the Citi Diamond Preferred card is one. You will need a minimum credit score of 700 to qualify, among other requirements.

Fact #2: Skipping a payment may cause you to pay regular, or penalty, interest.

Missing a payment voids your 0% interest agreement. If you break the contract, you will void your 0% interest rate and pay the regular APR. Legally, you can be charged a penalty APR on balances at least 60 days late. Penalty APRs can be as high as 30% and are an easy way to accumulate more debt.

Fact #3: Once your 0 APR promotional period is over, your regular interest rate is applied.

If you don’t pay your balance off completely by the end of the promotional period, you could be in trouble. That’s because your regular interest rate will apply to your current balance from the month after your promo period ended. For 0 APR purchase cards, future purchases past the promotional expiration will have interest applied to them when applicable.

Fact #4: You may suffer a short-term credit dip for your 0% APR balance transfer.

Opening up a 0% APR balance transfer card will have a negative effect on your credit in the short term. Recall that 10% of your credit score is based on how long ago you were granted new credit lines. A lender will perform a hard pull on your credit history as part of your credit card application process. The time since your last credit pull will drop to zero, and your credit score will dip temporarily. The most reliable way to fix this problem is to use your credit responsibly. By doing this, you should be able to rebuild your score relatively quickly.

Transferring your balance doesn’t immediately correct a high credit utilization percentage problem. Credit utilization is the ratio of the amount of credit you’re using divided by your total available credit. (This number is represented as a percentage.) Utilization counts for 30% of your credit score. If your resulting utilization is still high after the balance transfer, your score will be negatively affected. To correct this, decrease your utilization by paying off your debt.  This will result in a positive effect on your credit score.

Fact #5: A 0% balance transfer isn’t all you need to get out of debt.

Low APR Balance transfers aren’t the only thing that will help you reduce your debt. You need to figure out how to avoid adding more debt once the promotional period wears off. Remember at that point you’re paying interest again, and interest can add to debt fast. An 18.99% APR applied to a $10,000 balance can owe $2073.22 in interest charges over the next 12 months. This amount is compounded monthly and assumes you don’t add any more debt over the year.

Fact #6: Your balance transfer may come with a fee.

Most balance transfer cards charge a balance transfer fee equal to 3-5% of the total balance transferred. A balance transfer of $10,000 may come with a fee as high as $500, to be paid along with your balance. Always look at the whole credit card offer to see if the savings from interest are not consumed by fees.

Fact #7: Your APR may not be zero.

There may be different APRs for balance transfers, purchases, cash advances, and as a penalty. Read the fine print of your contract to see what the quoted APR is for each situation. You may qualify for a low, but not 0%, APR.  Don’t discard these offers right away. A 3% interest rate is a lot better than an 18.99% APR.

Fact #8: The 0% benefits may be useless if they don’t match your spending habits.

0 APR credit cards may not be useful for everyone. People who have no balance to transfer or pay their bills completely at the end of the month won’t benefit. That’s because they already don’t pay interest on their credit card account.

Carefully Consider If a 0 APR Card Is Right for You

0 APR credit cards are good for avoiding interest. This may be due to outstanding debt or a large planned purchase. It may not be right for everyone. Carefully consider if this card is right for you, using the information above, and your own research. Best of luck in your financial strategy!

Roman Zelvenschi

I started a digital marketing agency Romanz Media Group Inc. 12 years ago. Running my own business quickly taught me the importance of cash flow. Making sales was not enough, I had to have money in the bank to pay the vendors, staff and personal bills.

During those early stages of the company I learned how to get creative with debt and to save on interest cost. I paid for everything I could with a credit card to both get more points and to extend the payment date by 25 days (credit card grace period). I then utilized a 0% balance transfer offers to rotate this debt.

I learned a lot during this process and made a lot of mistakes. My key lesson is that the most important part of being financially independent is how much I managed to save, rather than how much I earned. Staying disciplined with savings and tracking spending is not easy and I tried many different methods to stay on track.

FinancialFreedom.Guru is a side project where I and my staff are trying to share the practical knowledge on how to understand finances and to build wealth.

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