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What Is A 0% APR Credit Card?

A credit card with a 0% APR pays a 0% interest rate for the first six months on payments, balance changes, or both.

Getting rid of financing costs may be a welcome relief from the double-digit interest rates that credit cards normally charge. The less tax you pay, the more money you get to put into paying off your mortgage.

Here's what you need to hear about 0% APR credit cards.

How Does A Credit Card With A 0% APR Work?

There are two different categories of 0% APR offers:
  • Purchases. Use the card to make payments and pay it off interest-free during the discount time.
  • Balance transfers. Move the balance to a 0% APR card to save money on current high-interest loans.

It's relatively simple to use a card with a 0% APR on transactions. Simply use your credit card as usual. Then, for the duration of the deal, pay off the balance over time without incurring any financing costs.

Make a $10,000 buy on a card with an introductory 12-month 0% APR bonus in transactions, for example, and you'll have 12 months to pay it off without adding to your debt. The card's regular variable APR kicks in after the promotional time expires. This ensures that if you have a balance after the 12-month mark, you will be liable to interest payments from the card. By the time the card's 0% interest bonus expires, you should have paid off the remaining balance.

A balance transition necessitates a few additional moves. When applying for a card with a balance transfer discount, you'll also be asked if you wish to transfer a balance through the processing process. You may also call the card issuer to request a balance transfer. If your credit card charges a balance transfer fee, it can limit how much you can transfer.

If you're eligible for a $10,000 credit limit but the card has a 5% balance transfer fee, you won't be allowed to transfer the whole amount. You'll have to pay a $475 conversion fee if you transfer $9,500, which is just beyond the max credit cap.

Keep in mind that, much as for a 0% sales bid, the residual balance on the card will accrue interest at the regular APR after the promo time expires.

Some credit cards pay 0% interest on all payments and balance transfers. If you're converting debt that would take longer to pay off, it's usually not a smart idea to use the card to make transactions as well. It's important to note that certain cards with 0% APR on sales and balance transactions have separate deal dates on both. For example, a card could give 0% APR on balance transfers for 18 months but only 6 months on transactions.

A 0% APR Card Can Help You Shed Debt More Quickly

Consider a 0% APR deal to be a short-term, interest-free loan with a deadline. It will give you a buffer of time to pay off what you owe without accruing extra finance costs if used responsibly.

Here's how it works in algebra. If you were to buy $5,000 and your new credit has an 18% interest rate, it would take 11 months to pay off your card if you make a $500 payment per month. In comparison, you'll have billed $458.11 in financing costs. If you make the same $5,000 transaction with a card that offers an introductory 12-month 0% APR bonus and make $500 annual installments, the debt can be paid off in ten months without incurring any finance costs.

If you plan to use a credit transfer to pay off loans, bear in mind that all of the cards with the longest interest-free terms would still charge a balance transfer fee—typically 3% to 5% of the amount transferred. This fee will eat into the amount you can save by transferring money. For instance, if you want to sell $10,000 worth of goods, It would cost you $500 to move your debt to a card with a 5% balance transfer premium.

Calculate if the risk of moving your debt—including the balance transfer fee—is less than the interest you'll pay on the current card to make the right decision about your situation. A balance transfer is likely to be a less risky choice if you take more than two or three months to pay off your debt.

The Amex EveryDay® Credit Card* and the Chase Slate Card* are two of the only cards that don't incur a balance transfer fee.

If you can pay off your balance before the interest-free period expires, these cards could be a safer option. However, if you want the longest possible time to pay off your loan, it may be worth it to pay the conversion fee on a card for a longer 0% APR term.

Balance Transfer Fees May Apply, But They May Be Worth It

If you're thinking of getting a balance transfer card, make sure to factor in any balance transfer payments before determining if it's right for you.

Here's how to figure out whether a particular balance swap deal is worthwhile for you: Assume you owe $10,000 on a card with a 20% annual percentage rate. You'll take a year to pay off the debt if you pay $1,000 per month, then you'll be paying an extra $1,030.45 in finance costs.

If you put $10,000 on a card with a 0% APR for 12 months and a 3% balance transfer charge, you'll save money. Your debt would increase by $300 as a result of the balance transfer tax. If you spend $1,000 a month, it will take you 11 months to pay off your debt. And with the balance transfer premium, you'll have charged $730.45 less than if you'd had it on the card with the 20% APR.

If you instead move the same $10,000 balance to a card with a 0% APR for 21 months and a 5% balance transfer charge, you'll incur a $500 balance transfer fee. You will make installments of just $500 a month and then pay off the card until the no-interest period ends because you have 21 months to pay it off. If you made the same $500 contributions on a card with a 20% APR, it will take you 25 months to pay off your loan and you would pay $2,266.07 in interest. After subtracting the balance swap charge, the 0% APR bid here will save you $1,766.07.

Zero Won’t Last Forever

When a credit card company offers a tempting interest-free duration, it's only for a short time. Although the better 0% APR deals are only valid for a limited time—typically anytime from six months to almost two years—before the card reverts to the standard multiplier APR.

Have a schedule to pay off as soon as you can before the promotional duration ends—ideally, the whole balance. Have a note of when your bid expires so you're not surprised when your bill comes after the interest-free period has ended.

Don’t Expect Rewards on a 0% Transfer Offer

While there are cards that deliver discounts that have a 0% APR, it's doubtful that you'll be able to receive incentives from a balance that has been moved. The most of the time, incentives are only received on new orders. The Priceline Visa Card is an unusual exception.

Balance transfers made within the first 30 days of owning the card will earn you up to 5,000 bonus points.

It's not a smart thing to be centered on incentives if you have credit card debt. According to the Federal Reserve, the total annual percentage rate (APR) paid on credit card accounts that accrued interest in the fourth quarter of 2019 was 16.88 percent. Credit card perks, on the other hand, usually range from 1% to 6% of the purchasing price. Interest costs can soon outweigh the amount of accumulated incentives.

Remember to Consider the Card’s Ongoing Attributes

When considering various deals, think about the discount duration of a card and consider whether you'll be able to use it until you've paid off your balance. Find the following features:
  • Is there an additional premium for the card? Is it worthwhile to retain it until your mortgage has been paid off?
  • What is the ongoing variable rate on the card? If you don't think you'll be able to pay off your balance in full or in part, and the card you're considering has a high interest rate, you could be better off with a low-interest card.
  • Is there a chance that the card will win you points? Does the card's earnings structure line up with where you usually invest the most after you've paid off your debt?

Taking Advantage of a 0% Offer Can Affect Your Credit

When you apply for a new credit card, the lender will do a hard request to acquire a copy of your credit record, with a few exceptions. Since new credit accounts for 10% of your FICO score, you should expect your credit score to drop a few points if you apply for a new card. If you open a lot of new accounts in a short period of time, lenders might think you're too risky to accept yet another line of credit.

What a major order or balance shift will do to your credit usage is a bigger concern. Credit usage is determined by dividing your overall debt (across all credit card balances) by your credit cap, which accounts for 30% of your FICO score (across all accounts). Your average credit usage should be less than 30% in most cases.

If you had to open your first credit card to take advantage of a 0% APR bonus so you could make a $5,000 order, but you were just given a $5,000 credit line, you'd be using 100 percent of your credit and hurting your credit score. If you have two additional credit cards, each with a $10,000 credit limit, the usage is just 20% ($5,000/$25,000).

Other Things to Take Into Account

Will you be able to qualify? Any of the best 0% APR deals are only open to people with excellent credit, usually a FICO score of 670 or higher. There are 0% APR cards available for people with bad credit, but the conditions could be less attractive.

Is it from a different financial institution than your new card? The majority of banks would not allow you to move a balance from one card to another. And if you're eligible for a card with a balance transfer deal from the same bank as your existing card, you won't be able to transfer your debt to the new card. You can get around this by depositing a check into your bank account, as certain businesses authorize, and then using the funds to pay off the other card.

It's possible that you won't be eligible for the cap you seek. Credit card issuers, with few exceptions, can not tell you how much credit you've been eligible for until after you've been approved for a card. If you had to pass $10,000 in loans or make $10,000 in home renovations but were only accepted for $5,000, this might be a challenge.

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