0% interest credit cards can be an enticing financial product. After all, you can take out debt and use someone else’s money at no interest. What could go wrong?
When to Use 0% Interest Credit Cards
Credit cards, in general, can be a really awesome financial tool. But they can also be a horrible financial mistake.
After all, more than three out of 5 people in the US owe credit card debt. And the average amount owed is just under $6,000!
This is the boat that you don’t want to find yourself in.
But if you do, in fact, find yourself in that boat right now, don’t beat yourself up over it. I’m here to help give you the tools to get out of that mess.
One of the ways that you can start to climb out of credit card debt is by transferring your existing credit card balance to a 0% interest credit card.
This can save you thousands of dollars in interest paid over time.
When you transfer your balance to a 0% interest credit card, you might have to pay an initial fee but that is generally okay.
I have seen the fees be around 3% of the balance most of the time. That is a LOT better than the average interest rate of 27%. Yikes.
And when you transfer your balance to your new card, you will likely be given a timeframe where the interest rate will be 0%. After that, it will jump to a higher rate (likely somewhere around the average interest rate of 27%).
So if you transfer your balance to the new card, MAKE SURE that you pay it off by the time the introductory 0% rate expires.
What Happens if You Don’t Pay Off The Balance Before the 0% Rate Expires?
Here’s what happens if you don’t pay off the balance before the 0% introductory rate expires.
You will have to pay the higher interest rate on the balance that you have remaining AS WELL AS the original balance that you had on the card.
That will completely undo any amount of interest that you have saved.
Here is an example:
You transfer $10,000 from one credit card to a 0% interest credit card on Jan 1st.
The 0% introductory rate is for 12 months.
If you pay off the entire $10,000 before the end of the year, you will pay no interest.
Woo hoo!
But let’s say that you were only able to pay off $8,000 of the card, leaving you with a $2,000 balance.
You will be charged interest on the $2,000 remaining of course. But you will also be charged interest on the original $8,000.
At an average interest rate of 27%, you will then be charged $3,060 in interest!
That is a kick in the pants. You thought you only had $2,000 left to pay. But now you get stuck with a $3,060 interest payment.
MAKE SURE YOU PAY THE ENTIRE BALANCE OFF BEFORE THE INTRODUCTORY RATE EXPIRES!
If you find yourself in the place where you won’t be able to pay off the whole amount, consider rolling your remaining balance to another 0% interest credit card.
This is not ideal, but it will give you more time to pay off the balance.
The Problem With 0% Interest Credit Cards
The important thing is that you fix the problem.
Credit card debt is bad. The use of credit cards is alright. Just not the debt, even at 0%.
I have seen SOOO many people overextend themselves financially because they justify a purchase (or a bunch of purchases) because it has a 0% or low interest rate. Or even worse, because they will get reward points or airline miles.
No amount of reward points will make up for the interest that you will pay on a credit card.
Don’t do that.
Make sure to stay within your budget and purchase things responsibly.
At the end of the day, you should not be buying things on credit cards that you could not also pay for out of your bank account with cash.
Final Thoughts
Credit card use is okay. Credit card debt? No way!
I know that it’s a corny saying, but it is true and should be burned into your mind.
If you are trying to get out of credit card debt and want to transfer your credit card balance to a 0% credit card, that is totally fine.
Just understand that you have to get serious about paying it off before the introductory rate expires. It’s really important to your financial health.
You cannot outrun a 20+% interest rate.
You can do this!
I am here for you!
Until next time!
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