Unless you’ve been living under a rock, you have probably heard about credit cards that offer 0 percent APR. Maybe you received a preapproved credit card offer in the mail, or perhaps you saw a commercial about balance transfer credit cards that help you pay down debt. Either way, it’s important to understand what a 0 percent APR card can do—and what it can’t do.
A credit card with 0 percent APR can be a valuable tool, but it can’t magically make your financial woes disappear.
If you’re thinking of signing up for a card that gives you 0 percent APR, there’s plenty you should know before you do so you can get the most of your 0 percent APR credit card and avoid some very common pitfalls.
1. You still have a monthly minimum payment
First off, you should know that 0 percent APR credit cards still require you to make a minimum payment each month. This payment won’t include any interest for balances that qualify for 0 percent APR, but it’s due just the same.
This can be seen as both a blessing and curse. Sure, being eligible for 0 percent interest doesn’t get you off the hook when it comes to making a payment on your card. However, the fact that no interest is accruing does mean that each dollar you pay goes directly toward the principal of your balance. Without any interest due, making payments helps you pay off your debt faster.
2. Your intro APR may apply to balance transfers, purchases or both
Another common misconception about 0 percent APR credit cards is the idea they let you skip interest regardless of how you use your card. The reality is quite different, and you’ll notice this when you begin comparing credit cards. Where some cards only offer 0 percent APR on balance transfers, others only apply this introductory rate to purchases made with your card. Some card options offer 0 percent APR on both purchases and balance transfers, yet these offers are few and far between.
What does this mean? If you get in the habit of making purchases on a balance transfer card that only applies 0 percent APR to transferred balances (and not purchases), you may quickly notice that interest is accruing on your card. This is due to the fact that your card is charging different rates on balance transfers vs. purchases, but also because you typically do not qualify for a grace period on purchases when you’re carrying a balance.
All you have to do to find out how interest is charged is read the fine print on the credit card offer you’re considering. For example, here’s how the wording is explained with the Citi® Double Cash Card, a popular balance transfer card:
“Introductory rate of 0 percent for 18 months from date of first transfer for balance transfers. Balance Transfers must be completed within four months of account opening. After the introductory period ends, the standard variable APR for purchases will be applied to unpaid introductory balances and new balance transfers. The standard variable APR for purchases is 13.99 percent to 23.99 percent, based on your creditworthiness.”
3. Your 0% APR can get canceled
Here’s another important detail: If you qualify for 0 percent APR on your credit card but your monthly payment is late, you may become ineligible for the introductory rate right away. This means you’ll go from paying 0 percent APR on your credit card balance to the variable rate your card charges overnight.
This is a good reason to always pay your credit card bill early or on time, along with the fact that your payment history is the most important factor that makes up your FICO credit score.
4. Balance transfer fees can eat away at your savings
Before you transfer a balance to a credit card that offers 0 percent APR for a limited time, you should be aware of any balance transfer fees you’ll have to pay. These fees typically tack on 3 percent or 5 percent of the balances you want to transfer, or $300 to $500 in fees for every $10,000 in debt you transfer to your new card.
While paying a balance transfer fee can make financial sense due to the interest savings you can achieve, you’ll still want to factor these fees into your debt payoff plan.
5. High credit utilization will impact your credit score
Also, keep in mind that if you transfer a large balance to a new credit card, your credit score could be impacted based on changes to your credit utilization.
Let’s say you transfer several balances that add up to $9,000 to a new balance transfer credit card that came with a $9,000 credit limit. In that case, your new balance transfer credit card would show a utilization rate of 100 percent, and that would not bode well for your credit score.
Generally speaking, experts recommend keeping your credit utilization below 30 percent for the best results. Since this factor makes up 30 percent of your FICO score, you should keep this in mind.
6. The 0% APR offer won’t last forever
Credit cards that offer 0 percent APR all extend their own unique perks and benefits, and some offer introductory interest rates that last a lot longer than others. With that being said, the average timeline you can get 0 percent APR for usually falls between 12 and 20 months.
Since you won’t get 0 percent APR forever, you should plan ahead. Your best bet is paying down your debts (or most of your debts) while interest isn’t accruing. Once your 0 percent APR offer ends, your remaining balances will begin accruing interest at the standard variable interest rate.
7. Some 0% APR cards let you earn rewards
Finally, you should know that some cards with 0 percent APR let you rack up cash back or flexible rewards for each dollar you spend. While these offers can be enticing, you should think long and hard about the potential for rewards and how it might impact your plans.
If you’re looking at balance transfer credit cards for the sole purpose of getting out of debt, you should probably avoid cards that let you earn rewards and might tempt you to start making purchases on the card during your intro APR period. If you just want 0 percent APR on purchases for a limited time, on the other hand, earning some rewards on your spending might not hurt as long as you’re not inclined to overspend.
The bottom line
Credit cards that offer 0 percent APR can be fairly diverse, so make sure to consider all the best credit cards on the market today before you decide. You may want a card with 0 percent APR on purchases, but it’s also common to look for zero interest on balance transfers only. Either way, make sure you compare all the best options based on the length of their introductory offers, the fees they charge and the cardholder perks you want.