Most credit cards make it expensive to borrow money. On credit cards that are charged interest, the average rate is a staggering 23.37%, according to Federal Reserve data. For every $1,000 in debt, you’re paying about $233 per year in interest.
In comparison, 0% APR credit cards look like an amazing deal. These have a 0% APR for an introductory period. During that time, you’re not charged any interest.
You can save quite a bit of money with this type of card, if you use it correctly. But there are a few common mistakes that could cost you thousands.
1. Not getting the right type of 0% APR offer
There are two types of 0% intro APR offers:
- Purchases: You don’t pay interest on new purchases. This type of offer is used for paying off large expenses over time.
- Balance transfers: You don’t pay interest on balances you transfer from other cards. This type of offer is used for refinancing credit card debt, which means transferring it from a card with a high APR to a balance transfer card with a 0% intro APR.
Some cards offer both for equal time periods. Other cards only offer one of the two, or they offer one for much longer than the other.
For example, a card may have a 0% intro APR for 18 months on balance transfers, but only for six months on purchases. You wouldn’t want to get this card if your plan is to pay off new purchases over time. Or a card could have a 0% intro APR for 12 months on purchases, but balance transfers are charged the regular APR from the beginning. That wouldn’t work if your goal is refinancing credit card debt.
If you’re looking for a way to save on credit card debt, a long balance transfer offer is exactly what you need. Click here to see our curated list of top balance transfer cards, with 0% intro APRs lasting as long as 21 months.
2. Using the 0% APR as an excuse to overspend
One of the risks with 0% APR cards is that they can convince you to spend money you otherwise wouldn’t. You know you don’t need a new tablet, and you didn’t even open a 0% APR card for that. But you really want it, and it’s not as if you’d be charged interest (for now).
You’re still taking on debt, even if it does have a 0% APR for the time being. And you’ll still need to pay back all the money you borrow. If you spend an extra $3,000 because your card has a 0% intro APR, that’s $3,000 to repay in the future. It will also start costing you interest once your card’s introductory period ends.
Plan what you’re going to finance with your 0% APR card before you open it. Maybe you want to use this type of card to pay off an expensive car repair over time, without getting charged interest. That’s a good way to use a 0% intro APR. But resist the temptation to make additional purchases you don’t need.
3. Only making minimum payments
Another danger with 0% APR cards is that they remove the pressure to pay down your balance. There are no immediate consequences if you only pay the minimum every month. Because of that, some people stop putting much effort into paying off their credit cards.
But the 0% intro APR will eventually end. When it does, the APR will increase quite a bit — possibly to over 20%, if your card’s interest rate is similar to the national average. If you still have thousands of dollars in debt when that happens, you’ll start getting hit with expensive interest charges.
Come up with a payment plan that will have your card’s balance paid off during the intro period. Let’s say your card has a 0% intro APR for 15 months. You use it to pay for $4,000 in medical bills. You’d need to pay about $267 per month to have that balance paid off during the intro period. That assumes you don’t spend any more with the credit card.
A 0% APR card is a valuable money-saving tool. You could use one to finance purchases or get a balance transfer card to help with paying off your credit card debt. Like any other tool, knowing how to use it is important. Now that you know what to avoid, you can find the best credit card with a 0% APR for your needs and ensure you get the most out of it.