Take care with your zero-percent credit card
Several major credit
card issuers, including Citibank, Fleet, American Express, Discover
and First USA, are pushing
credit cards with zero-percent interest rates.
"If you have good credit this is
definitely a good chance," says Jordan Goodman, the author
Money Book and spokesman for the Cambridge Consumer Credit
"If you follow the rules, you can't
get any better than zero percent."
Paying a zero-percent introductory rate
on a credit card can be a super deal but you'll need to be careful
-- very careful. One misstep and you can kiss that interest-free
"If you slip up, you won't be paying
zero percent; you'll be paying a much higher rate, and it's hard
to get out of it," Goodman says.
Two things seem to happen when people
see the words "zero-percent interest."
First, they get giddy at the prospect
of landing an interest-free deal. Second, they gloss over the more
mundane and potentially costly details.
Last fall, tons of car shoppers were
so busy congratulating themselves on their zero-percent financing
deals that they forgot to negotiate the price of the cars. Some
paid thousands too much.
You stumble, you
With interest-free credit card offers, what appears to be a great
deal could turn into a so-so deal or even a bad deal if you're not
First off, not everyone is going to qualify
for a zero-percent offer. It doesn't matter how many pre-approved
offers turn up in your mailbox. Goodman's 12-year-old son receives
offers for platinum credit card deals all the time.
"They're not exactly discriminating
on who they send them to," Goodman says. "But they're
very discriminating in the underwriting process."
So you may apply for a zero-percent deal
and get a card with a higher teaser rate or no teaser rate at all,
depending on your credit. As with any rock-bottom interest rate
offer, you'll need good if not excellent credit to qualify.
No issuer is going to offer an interest-free
deal to someone who's maxed out on his or her cards or who's been
late on several card payments.
The chronic credit card hoppers of the
world need to be wary as well.
Sure, your credit may have been good
or very good, but all that hopping around has hurt it. Those occasional
late payments when balance transfers went wrong haven't helped.
Issuers aren't fools. They're going to
take one look at your credit report and know what you've been up
"If you've hopped around a lot,
they know you're not going to stay," says Crystal Gomoke, a
counselor at Consumer Credit Counseling Service of Greater Fort
And they're not going to waste an interest-free
introductory rate on a customer who's going to bolt.
Study the details
Let's say you manage to land a zero-percent credit card deal. Congratulations.
But before you go out and celebrate -- grab a magnifying glass.
Is that interest-free introductory period
for purchases or balance transfers or both? When does the introductory
period end? What kind of interest rate will you pay then?
If the zero-percent teaser rate is on
balance transfers only, avoid making any new purchases with the
card. Issuers have a policy of applying payments to balances with
the lowest interest rates first. You'd have to pay off the entire
balance transfer before a single penny gets directed to any new
purchases you've made with the card.
This is not the credit card to take with
you on your next trip to the mall. If you do, you could end up paying
a truckload of interest on a $50 sweater.
Be on the lookout for fees. Some cards
charge you a fee for every balance you transfer to the
card. Both First USA and Citibank charge a fee equal to 3 percent
of the balance being transferred. First USA caps its fee at $35.
Citibank's fee is capped at $50. It's best to avoid offers with
hefty transfer fees.
You'll also want to be quick with your
card payments. Pay late even once and that zero-percent interest
rate will disappear for good.
With the Discover platinum card you pay
zero-percent interest on purchases and balance transfers through
November 2002. That's a pretty nifty deal, but all that changes
if you're tardy with a payment.
Pay late once and a 12.99 interest rate
snaps into effect. Pay late twice and you'll be stuck paying 19.99
percent on all balances. Let's not forget about late fees. At Discover,
you pay $15 to $35 late fees depending on your card balance.
With Fleet's Titanium Smart Visa you
pay zero-percent interest on new purchases for eight months. But
if you pay late you'll be slapped with a $35 late fee and charged
a penalty interest rate of as much as 21.99. Ouch.
A super-duper interest-free card deal
can stop being free pretty darn quick. Don't let this happen to
you. Pay that card bill on time every month. These
tips from Bankrate.com will show you how.
Watch your other
Be just as diligent with your other card accounts as well. Some
issuers, including Citibank, may increase your interest rate if
you fall behind with any creditor.
You'll need to be just as careful when
transferring balances between cards. It's important to continue
making minimum payments on your old card while waiting for a balance
transfer to take effect, which could take four weeks. If you don't,
your old issuer could slap you with a late fee. This
Bankrate.com worksheet will guide you through the balance-transfer
Your minimum payment amount will really
nosedive once you transfer a balance from a high-rate credit card
to one with a zero-percent interest rate. As tempting as it may
be to slack off on your payment amounts -- don't. It's best to pay
a whole lot more than a card company is asking for.
You want your balance as close to zero
as possible when the introductory period ends. This is your chance
to really knock down your card debt. Don't blow it.
"Never even consider just paying
the minimum amount," Gomoke says. "Pay as much as you
possibly can. Live as frugally as you can.
"You have the opportunity to just
pay the principal on the card. It's a great opportunity."