Should you carry a balance on a 0% APR credit card?
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If you open a credit card with an introductory 0 percent APR, it may seem like there’s no downside to carrying a balance. After all, you won’t owe interest during the promotional period. So, what’s the harm?
Even if your balance isn’t acquiring interest, neglecting to make payments can still lead to some negative consequences — including termination of your offer. It’s best to weigh your choices carefully before deciding to leave a balance on your card. Whether you should carry a balance during your card’s promotional period depends on your specific circumstances.
Why carry a balance during your intro APR period?
While carrying a balance can be a bad idea, there are some circumstances in which it might be a good choice for you.
You’re transferring a balance from a high-interest card
Let’s say you already have a large balance on a credit card with a high interest rate, and you’re struggling to pay it off. If you leave the balance on that card, you’ll end up paying a considerable amount of interest over time. Transferring the balance to a card with a 0 percent intro APR can allow you to pay some of your balance off each month without incurring more interest. In this case, carrying a balance on your 0 percent APR card as you pay it down gradually is a great way to save money on interest.
Just make sure you have a plan to pay down all or most of your balance before your intro APR period ends. Once it does, you’ll have to start paying the regular APR on the remaining balance.
You need to make a large purchase you can’t pay off right away
Similarly, you might need to spend money on something big that you need right away — like if you find out you have to get the transmission repaired on your car. Charging this to a new 0 percent APR card allows you to pay it off monthly without racking up interest.
Carrying a balance on something you need time to pay for is a good use of a 0 percent intro APR offer — but this should only be used for an emergency. If the purchase is something that isn’t absolutely necessary now, it’s better to save up for it instead of putting it on a credit card, even one with a zero-interest offer.
Potential downsides of carrying a balance
Now that we’ve covered reasons you might want to carry a balance, here are some downsides to consider.
You still have to make minimum payments (and pay on time)
It’s important to remember that a 0 percent introductory APR doesn’t mean you can leave a balance on your until the promotional period is up. You’re still required to make the minimum payments. Some cards may end your promotional period and charge a penalty APR if a minimum payment is too long overdue.
Some intro APR offers only apply to purchases or balance transfers, not both
It’s important to know what kind of intro APR offer you have. While many intro APR cards, including the BankAmericard® credit card and Chase Freedom Unlimited®*, offer a promotional period for both balance transfers and purchases, other cards have intro APR periods that only apply to one or the other.
On the other hand, the Citi® Double Cash Card allows you to transfer a balance and pay a 0 percent intro APR for 18 months (18.99 percent to 28.99 percent variable APR thereafter), but it has no intro APR for purchases, so any new charges to your card will accrue interest.
If your card has an intro APR period exclusively for purchases or balance transfers, it’s best to use it for just that purpose until your intended balance (whether it’s a balance transferred from a high-interest credit card or the cost of that new refrigerator) is paid off in full.
You might lose your grace period
Depending on your card’s terms, carrying a balance during the 0 percent APR period could cause you to lose your grace period. Your grace period is the window of time between the end of your billing cycle and your payment due date when you don’t have to pay interest — but only if you haven’t already been carrying a balance from month to month.
With some cards that offer a 0 percent introductory APR on balance transfers, carrying a balance results in losing the grace period for purchases. To avoid paying interest on purchases, you must pay off your statement balance, including the amount you transferred, by the due date.
Some balance-transfer cards offer additional incentives
Some credit cards offer additional incentives that can help you manage your balance. For example, the Chase Slate Edge℠ has a 0 percent intro APR for 18 months on both purchases and balance transfers (19.74 percent to 28.49 percent variable APR thereafter). The Slate Edge card also gives a 2 percent APR reduction if you spend $1,000 by your next account anniversary and make on-time payments. On-time payments with the Slate Edge can also get you an automatic, one-time review for a higher credit limit when you pay on time and spend $500 in your first six months.
How carrying a balance affects your credit
You may have heard carrying a balance is a good way to build credit. This is just a myth. Credit card companies report the balance that appears on your statement to the credit bureaus. Whether you go on to pay the entire amount or carry some over to the following month, it doesn’t change the number reported for that month. Plus, a FICO score doesn’t consider whether you’re carrying a balance.
So, carrying a balance doesn’t help your credit, and it can actually bring your score down. That’s because leaving a balance on your card increases your credit utilization ratio, which is the amount you owe on revolving accounts (like credit cards) compared to your credit limit. A good rule of thumb is to borrow at most 30 percent of your limit because a higher ratio can hurt your score.
In addition to pushing up your credit utilization ratio, carrying any balance that isn’t covered by a promotional 0 percent APR leads to interest charges that mean you ultimately pay more for the things you buy. Allowing interest to pile up could make it harder to keep up with your payments and might increase the chance that you aren’t able to make your minimum payment on time. And missing a payment or paying late can bring down your credit score.
How to pay off your balance during your intro APR period
Paying off your entire balance every month is easier to do if you create a budget before using your card. Try to charge purchases to your card only when you have enough room in your budget to pay them off in full.
Your credit card company must send you a statement at least 21 days before your due date. When you get your statement, read it right away. Check the date your payment is due and decide how you’ll make your payment. You may choose to pay through the credit card issuer’s mobile app or website, by phone or by mailing in a check.
Making your payment immediately can help ensure that you don’t miss the due date and incur late fees or be subject to a penalty APR. If you need to wait to make a payment, it may be helpful to set up a reminder email or a notification on your phone letting you know when the due date approaches.
Keep in mind that if you were carrying a balance up until this point, you might continue to be charged interest from the date of your statement until the credit card company gets your payment, which is called residual interest. If your cardholder agreement says that residual interest applies, you’re better off making your payment as soon as possible to minimize the amount of interest you have to pay.
Paying your balance can be almost effortless if you set up autopay, which automatically transfers money each month from your bank account to your credit card issuer. You’ll still want to keep an eye on your credit card balance to ensure the funds in your bank account are sufficient to cover it.
What to do if you’ve overspent
It’s never ideal to find yourself with a larger balance than you can handle at the end of a 0 percent intro APR period. The obvious answer to this quandary is to pay your balance down as much as possible before the regular APR kicks in. That way, you’ll minimize the interest you get charged. If you can pause payments elsewhere or generate extra income to get your balance closer to $0, do it.
You could also transfer your balance to another credit card with a 0 percent intro APR period. This can be a slippery slope, though. You don’t want to end up in a similar (or worse) situation in a few months. If you do choose this route, make sure you have a plan to eliminate your debt within the new card’s 0 APR period. Divide your balance by the number of months in your new intro APR period, and commit to making that payment each month.
For example, if you transfer $2,000 of debt to a credit card with a 15-month 0 percent intro APR period, commit to paying at least $134 per month for the next 15 months ($2,000/15=$133.33) while avoiding new charges.
What happens after your intro APR period ends?
If you choose to carry a balance during a 0 percent APR period, you’ll need to pay attention to when the promotional period ends. After the introductory period, your credit card company will begin charging interest on balances that were previously covered by the 0 percent promotional rate. Going forward, you’ll be charged the current APR listed on your statement when you use the card.
The bottom line
There are good reasons to carry a balance during a 0 percent APR period, such as if you’re paying down a balance from another card or if you need to make a large purchase. But carrying a balance during a 0 percent APR period can lead to unexpected interest charges or fees if you don’t read the fine print and monitor your card usage closely.
Keeping a balance on your card from one month to the next could increase your credit utilization ratio and negatively impact your credit score. So, as always, the sooner you can pay off your balance, the better.
More resources on 0% APR credit cards
- What is APR on a credit card?
- What’s a good APR for a credit card?
- The pros and cons of 0% APR credit cards
- How to choose a 0% APR credit card
*The information about the Chase Freedom Unlimited® has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.