The Zero-Percent Credit Card: Real, or an Illusion?

Katherine Muniz

By , Staff Writer
Posted on Tue Apr 29, 2014

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The Zero Percent Credit Card: Real, or an Illusion?

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Have you ever surfed the web and stumbled across a financial article touting a zero-percent credit card? You may have wondered — is it possible that zero percent interest rate credit cards really exist?

The answer is yes — to an extent. “Zero-percent” credit cards are credit cards with an introductory interest rate of zero percent, also called balance transfer cards. Balance transfer cards are ideal for consumers trying to pay down heavy debt and seeking help in managing bills and paying off balances, hoping to side-step the added headache of compounded interest.

Since typical credit cards charge interest on late, unpaid balances — hundreds of dollars can get tacked on to bills monthly, which not only slows the payment process down, but makes it more expensive too. Often, cardholders have actually finished paying down their debt, but are still catching up on all the interest they accumulated in the process.

However, balance transfer cards allow consumers to consolidate existing credit card debt onto one card, offering them a significant period of time (favorable cards offer an introductory period of 21 months and over) in which their transferred debt sits interest-free. Consumers with high debt may find that utilizing a balance transfer card in their debt-elimination strategy is very helpful.

Be cautious and read the fine print

A word of caution — there are drawbacks to these zero-percent credit cards. For instance, most charge new cardmembers a balance transfer fee of three to four percent, so the more a person transfers, the bigger their fee. For instance, someone transferring $10,000 onto a card that charges a 3% fee would have to pay $300.

Additionally, new purchases made on balance transfer cards are often treated differently than preexisting debt, and are typically charged an APR rate of 11.99 percent to 20.99 percent. Perhaps the most dire repercussion, if you’re late on a payment, your rate could shoot up and permanently change from your introductory rate of 0 to the card’s ongoing APR rate, and can go as high as 29.99 percent.

The myth of the zero-percent credit card may not be as rosy as you initially believed, but opening a balance transfer card can help you pay your debt and give you a break on interest for a solid period of time. Make sure to do your proper calculations. It makes more sense to go through with a balance transfer as long as what you’re saving in interest is higher than the fee you’ll be charged. Also, it’s wise to come up with a repayment plan so you can quickly pay off your debt within the allotted interest free period.

“Zero-percent” credit cards really exist, but deciding whether the baggage they come with is worth the hassle is a decision you’ll need to make for yourself.

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  • Praveen

    I have several 0% introductory APR cards which I took good use of to pay down my debts mostly from the trip to India and the new visa for my wife. These cards are an excellent deal if and only if you are responsible and make your payments as you should each month and pay in full by the end of the promotion rate. Not for everybody.

    • http://www.mybanktracker.com Katherine Muniz

      Thanks for your input Praveen, especially the examples you gave of real-life occurrences that can quickly turn into money drains. Balance transfer cards, as you said, are an excellent deal for cardholders serious about paying off their debt by the end of their card’s promotion rate. Those who aren’t, will continue to repeat the cycle once their introductory offer is over.

      Thanks for sharing your experiences – our other readers will surely be appreciative.