5 Ways to Save With a 0 APR Credit Card Offer
By Eva Norlyk Smith, Ph.D.
September 22, 2011
If you’re willing to do the work, you can save some serious money with a 0 percent promotional offer on purchases or balance transfers. However, it takes careful discipline to see a substantial payoff, say experts.
“Most consumers don’t follow the terms well enough to save money on 0 APR credit cards,” says Mike Sullivan, Director of Education for Take Charge America. “Otherwise, card issuers wouldn’t be so generous with these offers. You have to be very disciplined to follow through and make the payments to pay off the 0 APR balance on time.”
Luckily, thanks to the consumer protections introduced by the Credit CARD Act of 2009, it’s easier than it used to be to take advantage of these deals without getting snagged by retroactive penalty rates and other expensive traps.
“There is a tremendous improvement in this area,” says David Jones, President of the Association of Independent Consumer Credit Counseling Agencies (AICCCA). “Consumers enjoy greater protections against retroactive interest rate hikes, part of the payment is applied to the balance with the highest interest rate and the disclosures are much clearer as well. All in all it’s a much better situation than it used to be.”
Card offers are getting better too, say experts. For example, if you have excellent credit, you may be eligible for promotional terms that run as long as 21 months and you could pay less in balance transfer fees as well — at least until the promotional period expires.
Here are also five more ways you can save with a 0 percent promotional credit card offer:
1. Consolidate high-interest credit card debt.
Transfer your high-interest credit card balances to a card with a 0 APR or low-interest balance transfer offer. Then use the money saved in interest to pay down your debt faster.
Tip: Make sure you repay the balance in full before the introductory offer ends in order to avoid paying higher interest rates on the remaining balance.
2. Give your budget a temporary cash infusion.
If you are faced with higher than usual expenditures or need a short-term cash infusion, the interest saved on a 0 APR balance transfer or a 0 APR offer on purchases can give your budget a temporary cash infusion to tide you over until your economic situation improves.
Tip: Don’t borrow money you don’t have. Calculate ahead of time how much you can realistically pay off before the promotional term expires and don’t charge more than that.
3. Charge large, planned purchases.
If you’re already planning to make a large purchase within the next year, charge the purchase to a card with a 0 percent APR and repay the balance before the promotional period expires. This will allow you to make the purchase earlier than planned and pay it down slowly without incurring interest.
Tip: Keep in mind that carrying large balances on a credit card could affect your credit score. Before taking out a balance transfer or charging a large amount, use a FICO score estimator to calculate the effect on your credit score, and then decide if it’s still worth proceeding.
4. Finance a home improvement project.
Bank credit cards that offer 0 APR on purchases can be a great way to help finance a home improvement project or another upgrade of your home.
They are also a much better choice than the store credit cards offered by big box home improvement stores, which can trap you into paying sky-high interest. For example, many store-branded credit cards with ‘good-as-cash’ 0 percent interest offers on the purchases made in the store come with an important catch: If the balance is not paid off in full before the end of the 0 APR term, full interest is applied retroactively to the entire balance back to the first day of purchase. And since most of these store credit cards also feature interest rates as high as 24.99 percent, you could find yourself paying 24.99 percent on that 0 APR purchase—all the way back to day one.
Tip: Pay careful attention to the terms of any credit card offer you receive.
5. Save on other loans.
This is trickier, so do the math carefully and only proceed if you’re disciplined enough to follow through on your plan.
Calculate how long it would take you to pay off the balance on, say, a high-interest car loan or home equity loan without the added interest and then calculate whether you can afford to pay that amount within the allotted time. If you find that you can afford to pay the loan completely within 12 to 21 months, take out that same amount on a credit card with a long-term 0 percent APR offer.
For example, if you owe $10,000 on a car loan, you could ideally take out a $10,000 0 APR balance transfer for 21 months and avoid paying interest on the car loan for almost two years.
This is an extremely risky strategy, however, and will only work if you’re sure you can pay off the credit card balance in full before the promotional offer expires. And don’t just count on transferring the remaining balance to another 0 APR card at the end of the promotional term, as this can easily backfire.
Tip: Give yourself a financial cushion when you’re calculating how much you can afford to repay each month before the promotional period expires. That way, you’re less vulnerable to having your budget thrown off by unexpected expenses.
(Updated 09-22-2011. Originally published 05-22-2009.)