Introduction
Have you ever been tempted by a zero-per cent interest credit card, which, for a promotional period – 12 to 21 months – charges little or, as the saying goes, ‘no interest’ on purchases or a balance transfer? If you’re burdened by debt, such cards can let you pay down outstanding debt or allow you to buy a big-ticket item or save on interest.
However, qualifying for these cards can be difficult, and rational benefits can really be utilised just if you plan your expenses well. In this article, we’ll take you through the process of how you can qualify for a zero interest credit card, how to make the best use of the benefits and pitfalls to avoid.
What is a Zero-Percent Interest Credit Card?
For example, a 0 per cent interest credit card offers a certain period, usually ranging from 12 to 21 months, of 0 per cent APR (for purchases, for transfer of debt/balance, or both – as specified on the card).
Key Features:
Promotional Period: The 0% APR period usually lasts between 12 to 21 months.
Zero Per Cent Rate For: The next sentence tells you which categories enjoy the no-interest break – purchases, for balance transfers, or for both. 15% APR On Less Than: Let’s say that you aren’t careful or the rate expires. You’ll be charged interest on any purchases you make during that period.
APR After Promotion: This is the interest rate you’ll pay once the promotional period ends. It applies to any balances that are still outstanding at that point.
Benefits of Zero-Percent Interest Credit Cards
Zero-percent interest credit cards offer several advantages that make them an appealing option:
Debt Consolidation:
Pay off a zero-per cent card balance with an assured payment to another credit card company to earn their reward.Transfer an inordinately high interest balance from another credit card to a zero-per cent card to save on interest and pay off your debt faster.
Large Purchases Without Interest:
Get one of these cards and purchase a big-ticket item – from home appliances or electronics to travels – interest-free for a limited promotional period.
Emergency Financing:
Get interest-free credit so that you can face those emergencies without being terrified by the prospect of a notice with charges lodged against them.
Boost Cash Flow:
Putting off paying interest is, in that sense, a form of cash-flow management.
How to Qualify for a Zero-Percent Interest Credit Card
It is impossible to get this type of card unless you have a score that is well above average, plus whatever other terms that the issuer might you can do:
- Check Your Credit Score These cards require you to have a credit score, and pretty much everybody who issues them wants to see 670 or above, but the best deals go to people whose score is higher – 700 or above. Move the needle – check it often – you can get your current credit score and your credit report from Credit Karma (or you can get them free from Experian, if Credit Karma doesn’t let you in) or you can check your bank’s free credit monitoring feature, if they offer it. See where you can bring it up – pay down debt or dispute mistakes.
- Pay Down Existing Debt Big balances on the card will also hurt it, not least by playing up your credit utilisation ratio – the percentage of available credit you’re using. Rule: Keep your utilisation well under 30 per cent of your total limit. If you’re not going to do that, pay down existing balances a few months prior to application: it really works.
- Avoid Recent Negative Marks on Your Credit Report Recent derogatory marks from late payments, charge-offs, or bankruptcies can also lower your approval odds. If you have any recent derogatory marks, you’ll want to wait a bit longer, until after they fall off your credit report. Once you have the credit report in your hand, call the creditor who put a black mark against you and ask if the score has to stand if the debt has been, for example, if you have a medical emergency and can’t pay.) You might also want to pay a bit extra to buy the attended – the credit-bureau’s synopsis of all the bad news. Credit-bureaus are very competitive, so they keep well-informed of what their competitors charge.
- Limit Recent Credit Inquiries If you’ve recently made applications for credit to several lenders, then they’ll be more hesitant to trust you, since they’ll be tentatively thinking you’re in dire straits. Tip: Space the credit applications at least three months apart, so that you do not end up having a large amount of adverse inquiries in your credit reports in a short period of time. Consider applying for credit only when needed.
- Gather and Prepare Financial Documents When you apply, you might be asked to provide evidence of employment or income, credit record (or report), assets and liabilities, and two to four months of bank or other financial statements. Preparing these in advance just might make it a little easier to prepare the application. Hint: Have recent pay stubs handy, as well as tax returns and bank-account statements. (Even if you have been collecting unemployment and don’t have much cash, prospective landlords care how long you have been working and will be impressed if you have historically held your jobs for long periods of time.
Maximizing Savings with Zero-Percent Interest Credit Cards
As such, you should have qualified for a credit card offering zero per cent interest. What you need to do next is spend money on this card as explained below, in order to benefit from this interest-free opportunity:
- Plan Your Purchases Think about structuring it in such a way that you can make the best use of the interest-free period. For example, if you do a transaction in a sum that is quite large, during the promotional period, you don’t have to make any interest-free charges on it. It’s just like you borrow the money from Citibank, you repay Citibank, who in turn gives the money to the merchant. Tip: Work out your payments before you buy. Determine what monthly payments you will need to pay the balance down before the promotional rate expires.
- Use Balance Transfers Wisely Be sure of the fee if you want to make a balance transfer. While zero percent is appealing, most cards charge a balance-transfer fee – generally, 3-5 per cent of the amount transferred. (Warning: to ensure that the zero per cent offer is truly a no-brainer, make sure you include the transfer fee in your calculations – and the saving on interest is always greater than the upfront one-off fee, whatever the size of the balance outstanding
- Set Up Automatic Payments Fail to pay on time at all and you’d gift your creditor permission to jack up interest on principal, fees and the biannual percentage rate to an unfathomable degree – at least relative to your circumstances as a young person living on borrowed time. float a credit card for as long as you can Most of today’s US millennials have come of age under an economic regime so generously favourable for debt accumulation that their become ingrained – like several cups of stale grit. TIP: If you have automatic payments set up, make sure it pays at least the minimum owed, and you’ll keep your zero-per cent rate. If you can afford to pay more, do so. You want that balance gone.
- Avoid New Charges After the Promotional Period After the promotion period ends, however, you’ll need to pay off any new purchases you’ve charged at the card’s regular APR, which may be higher than the introductory one. Tip: Pay off what you already owe before the extra charges kick in. Move your remaining debt to another card now to get a better continuing rate for that new credit.
- Monitor Your Credit Score If used properly, a zero-per cent card can enhance and increase your credit score, but if paid poorly, it can have the reverse effect. Tip: It is far cheaper to use less than the limit (the most important factor is to use less than 30 per cent of the limit) and repay in time. Check your report regularly to ensure that everything is okay.
Common Pitfalls to Avoid
Although zero-percent interest cards can be very useful, there are certain risks:
- Misunderstanding the Terms Look at the fine print. At the time of writing, certain cards on offer seem to contain clauses that would allow your promotional rate to be lost if you ever miss a payment or go over your credit limit. Undercard tip: before you apply, check the card agreement carefully to make sure the free bonus is what you think it is and keep an eye on how long it’s offered for (also known as your promo end date) – you don’t want to be surprised by an interest charge after the promotion is over.
- Ignoring the Balance Transfer Fee That nice, big good, but a balance transfer fee wipes out your savings. And use an online calculator to work out whether the balance-transfer fee is likely to be offset by savings in interest.
- Not Paying Off the Balance in Time If you don’t pay off your balance before the issuer’s introductory rate ends, you’ll be charged exorbitant interest on whatever balance remains. Just make sure your payback schedule ends with the promotional date, and when you pay the bill in full, you will reap the full benefits of your zero-per cent deal.
Conclusion
Whether you are looking pay off a significant purchase over time, a zero-per cent interest credit card is a powerful tool that can keep interest charges to zero while you pay off your balance in full each month. However, securing a zero-per cent credit card is not as easy as it sounds. You have to have an outstanding credit history and a knack for financial management to get one. If you’re on top of your finances, a zero-per cent card can be your best friend in terms of saving money and making the most of your balance.
Here are a few ways to turbocharge your journey to financial success – whether your ultimate goal is to destroy debt, build a buffer or snag a big-ticket item, interest-free.