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Whether you’re planning a significant purchase or want to pay down your credit card balance, paying as little interest as possible is very attractive.
So, here we’ll explore 0% APR credit cards and how they work.
What are 0% APR Credit Cards?
As the name suggests, 0% APR credit cards have a 0% rate. However, it is not as straightforward as paying nothing to use the card. Most 0% APR cards have a promotional period.
So, you may have the 0% rate for 6,12 or 18 months, but after this time, the rate will increase to the card issuers standard rate. Additionally, some card issuers only apply the 0% rate to balance transfers, while others allow the rate to be applied to balance transfers and purchase charges.
You also need to be aware that having a 0% APR does not mean that the card is free to use. Although you may not be paying interest during the promotional period, you may still incur foreign exchange fees, cash advance fees, balance transfer fees and other charges.
It is important to check the full terms and conditions of specific cards to ensure that you are completely comfortable with any fees and charges that could be applied to your account. While paying down debt with a balance transfer card is one of the most popular reasons to get a credit card, you should make it smartly.
Examples of APR Credit Cards
There are many cards offering 0% intro APR. Most of them has no annual fee, but the requirements are usually high- you'll need a good-excellent credit score in most cases.
Here are some of the most popular 0% intro APR cards:
Chase Freedom Unlimited®
15 months on purchases and balance transfers, 20.24%–28.99% variable APR after that.
Citi Simplicity® Card
12 months on purchases and 21 months on balance transfers after that.
BankAmericard® credit card
21 billing cycles on purchases and balance transfers made within the first 60 days, 16.24% – 26.24% Variable APR. after that.
U.S. Bank Visa® Platinum Card
20 billing cycles on purchases and balance transfers after that.
Some of these cards offer rewards as well. For example, besides 0% intro APR, the Chase Freedom Unlimited® offer 5% on travel purchased through Chase Ultimate Rewards, 3% on dining at restaurants, including takeout and eligible delivery services, 3% on drugstore purchases and 1.5% cash back on all purchases.
How 0% APR Credit Cards Can Help You Pay Off Debt
If you’re looking to clear a credit card balance or some other debt, a 0% APR card can be a great way to help you accomplish this goal. With a standard credit card, the interest will be calculated according to the outstanding balance and this will be factored into the minimum payment due.
This means that if you’re only able to make the minimum payment every month, the bulk of your repayment will be going towards the interest charges. In this scenario, even if you don’t use the card for any other purchases, the balance could take years to clear.
However, if you have a 0% APR card, since no interest will be added to your account, your full monthly payment will go towards paying down the card balance. So, even if you are not able to pay far more than the minimum payment due, you can still make a dent in the debt.
Ideally, you will be able to clear the debt before the end of the 0% promo period, but even if you can’t, you would have been able to pay down the debt, so you’ll pay less in interest. So, if you can continue to pay a similar amount, you can continue to make progress getting your finances under control.
The Pros and Cons of 0% APR Credit Cards
As with any financial product, there are both positive and potential negatives associated with 0% APR credit cards. These include:
Potential to Pay Down Debt
Balance Transfer Fees
Cheap Way to Fund a Large Purchase
Set Transfer Periods
Ability to Earn Rewards
False Sense of Security
With 0% APR, these cards have great potential to pay down your debt.
With no interest accruing on the account, any money that you pay towards the card will all be allocated to bring down the outstanding balance.
If you’re planning a large purchase, a 0% credit card will allow you to spread the cost without incurring interest charges.
This makes it a great alternative to store cards or store credit, as you would pay interest with both of these payment methods.
In addition to having a 0% APR for a promotion period, some of these cards also offer the ability to earn rewards.
The Citi Custom Cash℠ Card card rewards include 5% cash back on your highest eligible spend category each billing cycle up to the first $500 spent and 1% cash back thereafter, in addition to 0% intro APR.
This means that while you enjoy paying no interest for spreading the cost of your purchase, you can also earn cash back or other card rewards.
While a card may have 0% APR on balance transfers, you may still have to pay a balance transfer fee. These fees are typically 3%, but some cards have higher or lower fees.
Some cards specify that if you want to use the 0% APR for balance transfers, you’ll need to arrange the transaction within a limited period.
For example, many cards require that balance transfers need to take place within 30 days of opening your account. So, you’ll need to have all the necessary information in place as soon as your account is activated.
If you have a 0% APR rate, you may be tempted to spend more than you anticipated.
Since you’re not going to be paying interest on your account, there could be a temptation to overspend and then be left with a larger balance that you may not be able to clear before the end of the promotional period.
How to Choose an 0% APR Credit Card
There are many 0% APR credit cards on the market, so choosing the right card for you may seem a little overwhelming. Fortunately, there are some considerations that can help you to narrow down your options.
- The Credit Requirements: Although most 0% APR credit cards are marketed towards those with good or excellent credit, there are some that are available for those with less-than-perfect credit. One of the questions to ask when choosing a card is what's my credit score? There is no point in applying for a card with an amazing 0% period if you are not likely to qualify. It is far better to apply for a card with a more modest introductory period.
- Balance Transfer Fees: If you’re planning on using the credit card to pay down an existing credit card debt, you need to look for a card that does not charge a balance transfer fee. This can help you to potentially save tens or hundreds of dollars if you’re transferring a large amount.
- Other Fees and Charges: You also need to check what other fees and charges may apply to your account. If you want to use the card outside the U.S, check whether the card has a foreign exchange fee. While you may be planning on making all your payments on time, make sure that the card does not have unreasonably high late fees.
- The Regular Rate: While having a 0% rate is great, you need to check that the card does not have an excessively high regular rate after the introductory period. If you’re not sure that you will be able to clear your balance before the end of the introductory period, you don’t want to negate the months of no interest if the rate skyrockets.
The Amex EveryDay® Credit Card
15 months on purchases , 17.49% – 28.49% variable after that.
Capital One SavorOne Card
15 months on purchases and balance transfers, 19.24% – 29.24% variable APR after that.
Wells Fargo Active Cash
15 months on purchases and qualifying balance transfers, 20.24% to 29.99% variable APR after that.
Discover it® Cash Back
15 months on purchases and balance transfers , 16.74% – 27.74% variable after that.
Citi Custom Cash℠ Card
15 months on purchases and balance transfers, 19.24% – 29.24% (Variable) after that.
How to Maximize 0% APR Credit Cards
If you can qualify for a 0% APR credit card, you’ll want to make the most of the promotional offer. There are a number of ways that you can accomplish this, including:
- Balance Transfer as Soon as Possible: You’ll have a 0% rate for a set number of months, so arrange any balance transfers or large purchases as soon as possible to obtain the longest possible period with no interest.
- Pay as Much as You Can: Although 6,12 or 18 months can seem like a long time, that promotional period will quickly come to an end. So, it is important to make an effort to clear the balance before you need to start paying interest. Aim to pay as much as you can off the balance each month, so you can see the debt amount dropping.
- Make Payments on Time Each Month: While you may not be incurring interest charges, it is still important that you don’t damage your credit by making late payments or missing payments. If you’re unsure about how much you’ll be able to pay each month, arrange Autopay for the minimum amount due, you can always make additional payments throughout the month.
- Don’t Overspend: It may be tempting to hit the stores and have a spending spree when you won’t pay any interest, but you don’t want to end up with a large balance outstanding on the card when the promotional period ends. So, plan your purchases and have a plan to clear the balance while the rate is still 0%.
When It May Not Make Sense to Choose 0% APR Credit Cards
0% APR credit cards can be a great financial product, but there are scenarios where it may not make sense to choose one.
- You Struggle to Manage Spending: Overspending is a real temptation with 0% APR credit cards, so if you have difficulties managing your spending, this type of card may not be a good choice and you should look for other types of credit cards.
- The Regular Rate is High: If you don’t have perfect credit, you may be offered a card with a 0% introductory rate, but after this promo period, the rate could be excessively high. In this case, you may be better suited to a card with a more reasonable rate and no promo period.
- The Fees are High: Many credit card issuers look to offset the lack of interest charges with other fees. So, if the fees and charges for a card are excessively high, you may want to look elsewhere.
- There are No Perks: If the 0% card is quite basic and offers no perks, you will need to assess whether a rewards card may offer greater value. For example, if you’re a frequent traveler, free checked bags, lounge access and discounts on in-flight purchases may be worth more than the interest charges you’d incur on your card balance.
Personal Loan As An Alternative to 0% APR Credit Card
If you’re not sure that a 0% APR credit card is the right choice for you, you may want to consider the alternatives. These include:
If you are looking to pay down your credit card debt, but you would not be able to clear the balance before the end of a promotional period, you may be better off with a personal loan.
Although on paper, having a 0% rate may seem like a great deal, if this promo period is only for one year and then you’ll be paying 25%, you may be better with a personal loan that charges 5% for the full term.
For example, on a $10,000 loan with a one year 0% rate and making $200 a month payments, you’ll only be able to clear $2,400 without paying interest. After this, you’ll still have $7,600 outstanding.
At 25% APR regular rate, you’ll be paying approximately $180 in interest charges. This means that only $20 will go towards the account balance. However, with a $10,000 personal loan at 5%, you’ll be paying $180 per month and have the balance cleared in five years.
This depends on if you have sufficient credit on your new card. If you have enough available credit, you can simply balance transfer the necessary amounts to clear your credit cards to your new card.
No, even though you will not be paying interest, there will still be a minimum balance due. This means that you will still need to make at least the minimum payment each month when your bill arrives.
It simply means that you will not accrue any interest on your account balance during the promotional period.
Not typically. Most cards have a set number of months with 0% APR and at the end of this promotional period the interest rate will return to the standard APR.
However, there are some exceptions to this. Some cards offer to extend the 0% rate for an additional number of months if you make your payments on time and use the card responsibly.
You’ll need to qualify for a credit card that has a lower interest rate. This may be possible if you have good credit.
However, if your credit rating has dropped since you opened your current credit card account, you may struggle to obtain a better rate and may end up paying more.
Pay off as much as possible each month to try to clear your balance before the end of the promotional period.