A few months ago, I managed to get my hands on a new credit card with a 0% introductory rate for 12 months. I transferred the balance from my other credit card, which means that if I can manage to pay it off before the intro period ends, I won’t have to pay a cent more in interest, beyond what I’ve already wracked up.
It’s a bit easier said than done, perhaps.
Just yesterday, I have to plunk an additional $350 on that credit card in order to pay for needed repairs on my car. I would have paid for it in cash, if I could have – I’m not happy with the idea of putting anything on my card, even if it is at 0% interest.
The key to a 0% APR balance transfer is to make a commitment to pay it off before the intro period ends. For me, this means paying more than three times the amount I’ve been paying monthly to the card. It’s going to be tight. It’s going to be painful. But it’s exactly what I need to do to pay off the card.
The other good thing about transferring my balance is that it leaves the original card free and clear, so that I can begin to use it responsibly again. There was a time (circa early 2006) when I only put small purchases on that card, and paid it off every month – never carrying a balance. Now I have a chance to get back to that, and enjoy the float and rewards points that using the card can offer me.
After I’m done paying off my credit card balance, it will be on to the next thing that’s bothering me: paying off the interest on my student loans!
I hope when you say you have a 0% card, you mean you have 0% on transfers and purchases. Sometimes they only give you 0% on transfers. That would mean that the $350 you plonked down on the card yesterday could start costing interest (at some atrocious rate usually) immediately.
In other cases I’ve heard of, the interest-free balances are paid off first. So every payment you put toward the card pays the 0% balance, while your $350 car payment just keeps costing you, every month.
Perhaps your card isn’t like this, but it pays to be careful. Depending on the terms it might be better to put it on the original card.
@Don –
Yes, thank you for the concern, the rate is 0% on both balances and purchases. And thank you for pointing that out – that’s an important thing to watch for if anyone else is looking to do what I did. Not that I at all recommend using the card after a balance transfer – I only did that because my last car repair (a mere month and a half ago) sucked my emergency fund dry, and I had no other choice to keep the car on the road.
I was sucked into a 0% interest card…I racked up about $2k in credit card debt by the time the interest kicked in. I’m still extremely frustrated with myself. However, I’ve learned a lot since then!
Well I hope your didn’t have to pay balance transfer charges either
@Money Blue Book –
Actually, I did. All of the cards I could get with no balance transfer fee would only give me 6 months for the intro APR (my credit is ok but not great, since I’m so young), so I did the math and it was better to get a 12 month with a fee than a 6 month with no fee. But doing that math is important!
It’s 0% until you miss a payment. The universal default rate can be a bitch.
Debt Free Dave
http://getprequalified.com
Managed sensibly 0% cards can be a god send to help consumers save a pile of cash for the short term, but on the flipside it can be a curse if you’re tempted to use it a little more than you should! If you’re really interested in the benefits, transfer the balance then destroy the card or give it to somebody for safe keeping!
So, what it really comes down to is we need to get you a higher paying job so you can get everything paid off by next year π
It’s tough to get out of the hole when you are a student, and trust me, once those student loans start kickin’ in… sigh… such a pain in the butt.
Could have been worse! It’s tempting to max out those 0% cards.
You may want to consider a fixed rate balance transfer credit card, if you intend to carry the balance for a longer period.
This type of card is especially helpful if your sum of balance is large and you are unable to pay within the intro period(normally 12 months) given by a 0% credit card.
It offers you a fixed rate on the life of balance transfer card. This will help you plan better as you know the interest rate will not increase for the lifetime of the debt.
i am picking up what you are putting down
http://www.edebtsolutions.org
Credit cards are great for credit scores if you don’t use them (your credit-debt ratio accounts for about 30 percent of your FICO score), but terrible as a source of loans. Well, I guess they’re better than a payday advance loan, but only in the sense that being nibbled by pirahna beats the heck out of getting your arm torn off by a great white.
And yet… If you ain’t got savings, you do what you have to do.
While most people fully intend to pay off their card balances within the intro period, credit card companies know full well that many people will not. Like insurance companies, card issuers have actuaries that calculate the statistical probability of these scenarios. Much like the casinos house rule of sticking on 17 at blackjack, the house typically wins out on the balance transfer/0 APR game.
Pay more than you think you can afford when paying down your card balances, whether it’s a 0% intro APR or not.
Indeed, my Dad is an actuary and it’s a very high figure of people that start paying high interest on their initial 0% card. As above though if you can take a card and ot use it that can help your credit score loads! Best thing in debt is to try and swing it the other way for a while and live frugal, many sites around to help, money saving expert is the big one!
James
Your best bet is to stay away from those things. It’s just too tempting to buy stuff when it is plastic. The credit card companies know this. They don’t care, they just want to make money off of you.
@DebtFreeDave – I don’t know if that’s necessarily true. I wrote a post on the subject: Do We Spend More When We Swipe Plastic?
Some people do spend more with credit cards, but some people (like me!) spend more when we have cash! Which is why I always carry my card (the one with no balance), but I rarely carry cash, because I know I would just spend it.
You really have to know yourself and know which one you’re more likely to just hand over to buy stuff you don’t really need.
I’ve been doing the 0% balance transfer thing since 2003. I’m now using business credit cards for temporary financing — at 0%, of course. This way, my consumer cards remain with a $0 balance and my FICO credit score stays sky high.
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Interesting article I was looking for something like this. thanks Stephanie
When applying for a 0 APR credit card always make sure to read the fine print so that there are no surprises in case for some reason you fail to make a payment on time or if you should charge more then your allowable credit limit. A 0 APR credit card can be very helpful to you but only if you plan on using it wisely.
0% APR Credit Cards are a great chance to save a lot of money. You have probably thought that the card seems like a great deal. Although, truth is, there is a lot more to %0 APR Credit Cards. This is not to say they are bad. These cards can be great, if the right one is chosen, and used properly.
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