0 Interest Credit Cards
- 1 What are 0 Interest Credit Cards?
- 2 How 0 Interest Credit Cards Can Save You Money on Interest Rate Expenses
- 3 Saving on Interest Expenses With 0 Interest Credit Cards
- 4 0 Interest Credit Card Offers -- Here to Stay or a Passing Fad?
- 5 After the Intro -- Variable vs. Fixed Rate Credit Cards
- 6 How to Use Low APR Credit Cards to Become Debt Free?
- 7 Where Can I Apply for 0 Interest Credit Cards?
What are 0 Interest Credit Cards?
There are many credit card companies like Chase, Citi, Capital One, Discover and American Express that offer 0 interest credit cards to consumers who are looking for 0 interest on purchases and/or 0 interest on balance transfers. Many consumers are particularly interested in 0% annual percentage rate (APR) or interest on balance transfers for life of the balance. Unfortunately, there is no credit card out there that offers 0% APR on balance transfers for life of the balance. However, there are many great credit cards that offer 0% introductory interest on purchases and balance transfers for up to 12 months and a low interest rate after that introductory period.
Before you go and apply for 0 interest credit cards, let's learn a few things that will help you to find the right credit card.
How 0 Interest Credit Cards Can Save You Money on Interest Rate Expenses
Many times, credit card companies offer a low introductory rate that will give you a 0% interest rate on a credit card for only a short period of time, usually 6 months. After that time the 0% introductory rate goes up to a higher fixed interest rate. The 0% introductory interest rates sometimes appear really good, but might actually cost you in the end. If you are planning to pay off the balance before the introductory rate expires, then credit cards with a 0% introductory APR or low interest rate can actually save you money.
However, if you plan to own a credit card for an extended period of time then a fixed low interest rate credit card might be better for you. With a fixed low apr credit cards you know what your interest rate will be.
Saving on Interest Expenses With 0 Interest Credit Cards
What is the best way to save money with credit cards?
The easy answer is to pay off your credit card balance every month and only spend what you can afford to spend. Paying off the balance on your credit cards every month lets you avoid interest expense and finance charges. It’s like getting an interest-free loan. Isn't that a great way to save money?
That would be a great idea. But what about for the rest of us who, for one reason or another, carry balances on our credit cards? Isn’t there a way in which we can save money on our credit cards?
Fortunately, there is. All the major credit card companies (Visa, MasterCard, American Express, and Discover) offer a wide variety of low interest credit cards, but not all the interest rates are the same.
Two ways to save:
There are 2 kinds of offers usually offered. The first is the special 0% introductory APR (annual percentage rate). This is where the card gives you a 0% interest rate for a short time and then raises the APR after that time is over (usually 6 months). Another option is a lower fixed-interest credit card—how low "lower" is depends on how high the interest rates on your current cards are presently.
How much money can a low interest credit card save you? Let’s compare the difference between an 8% fixed interest rate versus a 20% fixed interest rate (a typical rate). Let's look at some numbers:
Let’s say you carry a balance of $1,000 for a year on your credit card for a full year. One at a 20% fixed interest rate, and your interest expense is $200.
$1,000 x .20 = $200
But on an 8% fixed-interest credit card you would only spend $80 in interest expenses.
$1,000 x .08 = $80
So, by going with an 8% card over a 20% credit card, you are saving $120 a year.
This doesn’t even include the money you will save in finance charges. Let's also look at how a 0% introductory offer can save you money. Let’s compare the credit card with a 20% fixed interest rate with a card that gives you 6 months at a 0% rate but goes up to 25% afterwards. Again, let’s assume you carry a $1,000 balance over a year.
On a 20% fixed interest rate , you will spend $200.
$1,000 x .20 = $200
But let’s look at the numbers on a card with a higher normal rate but with a lower introductory APR:
It is $250 for one year at a fixed APR of 25%
$1,000 x .25 = $250
But the first 6 months is 0%. So, we can divide that by 2 and we have $125. So, you save $75 going this route. But for the sake of your credit, it is best to use this ONLY as a short-term solution. All the major cards—Visa, MasterCard, American Express, and Discover, have these kinds of offers.
As you can see, 0 interest credit cards and low fixed rate cards can save you money over time. Remember though: the BEST way to save money is to pay off your cards monthly. But for the rest of us who carry a balance, getting a low interest credit card or a credit card with a low introductory rate is one way to save you money in interest expenses.
0 Interest Credit Card Offers -- Here to Stay or a Passing Fad?
Low interest and 0% introductory rates for credit cards have been around for quite a while but not so long ago (a mere fifteen years or so) you had to take a one size fits all rate determined by the bank – typically 18% and pay a $20 annual fee for the privilege. Today it is almost uncommon to find a credit card that doesn't offer at least some type of incentive rate during the first 6 or 12 months of getting the card.
The most popular credit card deals offer a 0% APR on credit card purchases and balance transfers for at least one year. Consumers have come to take these "teaser" rates for granted and tend to shop for 0 interest credit cards based on these rather than the permanent or "go to" APR. The use of the low APR teaser rates (so called because they lured cardmembers into taking the credit card offer and then the rates would go up dramatically soon thereafter) were pioneered with the advent of the monoline bank (a bank that only issued credit cards and didn't take deposits or make other types of loans). This new breed of credit card bank came on the scene in the late 1980's and made full use of newly available consumer credit databases to make targeted offers to different populations based on risk.
The 1980's were also the first time that mass direct mail campaigns were used to solicit millions of consumers for credit cards at once across the United States. Once the genie was let out of the bottle with low interest introductory rates it was impossible to get it back it seems, so what was intended to be a novel but temporary marketing gimmick has proven to be an ongoing cost of doing business for the credit card banks. Unless you revolve a credit card balance from month to month, even a 0 interest credit cards intro rate isn't that appealing, but if you are transferring balances from another high rate credit card or need to do some short-term borrowing it can really provide some much-needed financial breathing room.
Some fads like the pet rock don't stick around for very long, but low interest introductory rates -- even at 0% APR -- appear to be a semi-permanent part of the credit card industry in America. But as with many things that are taken for granted, they may not last forever.
After the Intro -- Variable vs. Fixed Rate Credit Cards
Credit card offers typically highlight their low or 0% APR introductory rates and other enticing features but rarely talk much about what happens when those credit card intro rates go away after 6 or 12 months. The "go to" rate, as it is called, is more often than not a variable rate based on an index such as the Prime lending rate (the rate at which the top banks in the United States can borrow money from the Federal Reserve). The go-to rate also varies depending on your overall credit profile, since banks make their lowest rate offers to those with the best credit (i.e., lowest risk of defaulting on their credit card balances due).
Variable interest rates appear to be very consumer friendly if the prime rate is falling (as it was in the past few years) but banks normally place what is called a "floor rate" in their cardmember agreements to maximize their profit margins during such economic environments. The rate does float upwards when the prime rate rises, however, which allows the banks to fully pass on their increased cost of funds to you the consumer.
Fixed rate credit cards do exist in the marketplace and, for example, are often touted as a fixed 9.9% APR after the introductory period. While a fixed rate credit card might seem more appealing on the surface it is important to realize that banks can and often do change their "fixed" rate credit card rates by merely providing a 30 day written notice (as stated in extremely fine print in the cardmember agreement) in a nondescript mailing or as a buckslip inserted into your monthly billing statement.
Which type of credit card is best for you? Given the prevalence of variable rate cards in the market with great introductory rates it may be a moot point – variable is the way of the market. And, if you can stay disciplined and not revolve balances each month there is no need to be concerned with the interest rate at all. But, if you are trying to get out of debt the rate carries tremendous consequences – the fact that it is calculated as an index plus a margin or just a flat rate is probably matters less than what that equals at the end of the day.
How to Use Low APR Credit Cards to Become Debt Free?
Are you in credit card debt and perpetually stuck in a cycle struggling to make minimum payments on your outstanding credit card balance? You can take some degree of comfort in the fact that you're not alone. Nearly 70% of Americans revolve a balance on at least one credit card and 45% of those with credit card debt only make minimum payments on their account each month. Credit card balances can literally take decades to pay down when only making the minimum payments.
It may seem unusual to think about credit cards being used as a tool to become debt free but it's all in how you play your cards. The extremely competitive nature of the credit card industry has given rise to the low interest introductory rate and even the 0% intro rate. 0 interest credit cards are not inherently evil, but if used irresponsibly can lead to tremendous financial hardship. Self discipline is the key – first by living within your means and, when in debt, developing a plan to get debt free.
Finding a low APR credit card could be important to giving yourself breathing room if you have existing credit card balances revolving on other high interest rate credit cards. Once you are approved for a low APR credit card you can usually transfer balances and begin saving right away. The difference in monthly outgo for a $9,000 balance at 19.99% APR vs. a 1.9% introductory APR for example would be over $1,600. And this is where the discipline comes in – it is imperative that you don't use the slack created by your new low APR credit card to get into more financial trouble by piling onto your existing debt or spending the savings somewhere else. Begin paying down the principal with the money you were spending on interest and that debt will begin to slowly but surely disappear.
A low APR credit card is not the only answer – to truly get out of debt and stay debt free requires that you cut all unnecessary expenses and live within a reasonable budget – could be a great first step.