Use a 0% intro APR card to avoid the Ghost of Interest Future


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During the final months of the year, many people have a lot of interest in holiday shopping. When their credit card bills come due in January, some of them will pay a lot of interest.

However, with the right credit card and the right strategy, you could avoid facing interest charges on your holiday purchases for a year or longer.

The key is credit cards that offer temporary zero interest on purchases — 0% intro APR credit cards. Those zero-interest offers are frequently long, but not unlimited. Still, you don’t have to pay regular APR (Annual Percentage Rate) on any balance you carry forward until the zero-interest offer expires.

Where does holiday shopping enter the picture? Let’s say you apply for and receive a 0% intro APR credit card in the next couple of weeks. You could designate it as your “Christmas card” and put all your holiday purchases on it, reserving your regular credit card for day-to-day expenses. Then, when the holidays end, you could take the designated card out of your wallet and concentrate on paying off the balance.

You’d have the opportunity to chip away at the balance with regular payments, potentially saving a lot of money on interest charges.

A holiday spending case study

The average American consumer plans to spend $1,047.83 this holiday season, according to a National Retail Federation survey. Let’s round up and use $1,048 as a baseline figure.

If you put $1,048 in holiday shopping on your regular credit card and want to avoid paying interest, you’d have to pay the entire balance at once (including any non-holiday purchases for those billing periods). If you opted to pay off the balance over time — which, as a general rule, we don’t recommend — APR could cost you quite a bit of money.

Consider the following simulation from the Bankrate Credit Card Payoff Calculator, isolating $1,048 in credit card debt. If you paid it off over 12 months’ time in $95 installments at 17.44% APR — the average rate as of Nov. 20 — you’d pay $101 in interest charges on top of the principal $1,048.

The Bankrate Credit Card Payoff Calculator simulates a payment plan for a holiday shopping bill.

On the other hand …

With a 0% introductory APR credit card, a 12-month payment plan would involve a smaller monthly payment of roughly $87 and — equally important — zero interest. By saving $101, you’d essentially be avoiding the equivalent of a 13th monthly payment.

Other benefits of a ‘Christmas card’ plan

Saving money on credit card APR isn’t the only potential upside to using a zero-interest APR card for holiday shopping. Other possible benefits include:

An extended repayment window

You saw the hypothetical payment plan used earlier, but what if you could avoid interest for longer than 12 months — potentially much longer?

Many zero-interest cards currently available have introductory APR offers that last 14, 15, or even 18 months. A lengthier zero-interest offer could mean lower monthly payments in addition to more time to make them. The key is paying off all the debt before the offer expires and the card’s regular APR applies.

Cash back on eligible purchases

A number of zero-interest cards also have cash back programs that reward you for all eligible purchases. Using the $1,048 figure again, a flat-rate 2% card would earn almost $21 in cash back.

Admittedly, nobody ever retired early on $21. All the same, you could redeem the cash back you earned as a statement credit and reduce your monthly payment a bit. Your other redemption options, depending on the card, could include gift cards or checks payable to you. In any case, it translates to putting money back in your pocket (or keeping it from escaping, if you prefer).

Spend responsibly, any time of the year

The concept of the 0% intro APR holiday shopping card is not an invitation to spend beyond your means. It’s something to consider if you want to pursue a practical, responsible course of action for temporarily limiting your exposure to credit card APR.

In that way, the plan could provide a way to give yourself a financial gift through buying gifts for others.