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0% APR credit cards: Life rafts or debt traps?

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All credit cards charge interest. But some cards—known as 0 percent intro APR credit cards—offer zero interest for a limited time after you open an account. The 0 percent rate will apply to 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. However, for every person who successfully uses a zero-interest credit card as a life raft, there’s another person who makes the kind of error that lands them in a debt trap.

Are you ready to avoid the pitfalls and use a 0 percent APR card to your advantage? Here’s what you need to know.

Potential pitfalls of 0% APR credit cards

Zero-interest credit cards can be excellent financial tools. But, used incorrectly, they can also be hazardous to your financial health. Here are the four most common mistakes people make with 0 percent intro APR credit cards:

You rack up debt you can’t afford

Some people treat 0 percent intro APR cards as free money. Since new charges don’t immediately start accruing interest, it’s easy to make excessive purchases on the card and tell yourself you’ll pay off the balance later.

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 make any purchases you can’t afford to pay off before the 0 percent intro APR period expires.

You don’t make the minimum payments

Some people assume zero-interest credit cards don’t require minimum payments. This is a common misconception that can cost you a lot of money—and damage your credit!

By missing payments, you run the risk of lowering your credit score and racking up late payment fees. Plus, you’ll probably lose your promotional interest rate—which means that any balance you are carrying on your 0 percent intro APR card will start accruing interest.

How do you avoid this pitfall? Always make on-time payments on your credit cards, even if you can only make the minimum payment.

You forget when the intro period ends

Some people open a 0 percent intro APR card intending to pay off their balance before the intro APR period ends—and then they forget how long they have to get the job done.

What happens when your 0 percent intro APR period ends? Once your promotional interest rate expires, any balances remaining on the card begin 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 pitfall, mark your calendar or create a phone reminder for the end of the promotional period, and make a plan to have your balance paid off in full by then.

You transfer a balance and don’t pay it down

Some people use balance transfer credit cards to pay off old debt. By consolidating your debt onto a credit card that offers an introductory 0 percent APR on transferred balances, you can temporarily eliminate the monthly interest charges that often make it more difficult to pay off your debt in full.

However, this method only works if you pay off as much of your balance as possible before the 0 percent intro APR expires. If you transfer a balance and don’t pay it down, you could end up right back where you started—with outstanding credit card debt that gets larger and larger every month, thanks to compounding interest charges.

How do you avoid this pitfall? Use a balance transfer calculator to determine how much of your balance you need to pay off every month to avoid interest charges. Then, do your best to hit that monthly payment goal.

When getting a 0% APR credit card makes sense

Now that you know how to avoid turning your 0 percent intro APR credit card into a debt trap, let’s look at how to use zero-interest credit cards to your advantage. Here are two of the best reasons to apply for a 0 percent intro APR credit card:

You have a large purchase you want to split into several monthly payments

When you put a large purchase on a 0 percent intro APR card, you essentially give 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 be affordable. If you can’t pay it off all at once, you should be able to set aside enough money over the next several months to pay it off in full.

You want to transfer and pay down debt while saving on interest

Some people use 0 percent intro balance transfer credit cards to pay down debt while saving on interest. The best balance transfer credit cards offer at least a year of zero interest on transferred balances, giving you plenty of time to pay off as much of those balances as possible.

Even if you can’t pay off your transferred balances in full before the promotional interest rate expires, you can still save money by avoiding interest for a year or longer. Again, a balance transfer calculator can determine whether this is a good option for you.

Getting a 0 percent intro APR credit card to pay down debt makes sense if you can pay down a significant amount of your debt before the 0 percent rate expires. Create a budget that allows you to prioritize debt repayment—because every dollar you pay off today could save you money in interest charges tomorrow!

The bottom line

Credit cards that offer promotional interest rates can be excellent tools if you know how to use them. 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.

Written by
Nicole Dieker
Personal Finance Contributor
Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor.
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