'Tis the Season for 0% Credit Cards
- grabyourslice
- 6 days ago
- 4 min read
Updated: 4 days ago
Is it just me, or has there been an uptick from credit card companies to open a brand new shiny credit card at 0% (at least 0% for 18 months)? Seems like lately, I'm getting 1-2 new offers every week.
Don't get me wrong, 0% credit cards, like many other tools, can be useful when used the right way. BUT ... 1) they are not for everyone, and 2) they are not right for every scenario. Companies don't offer them out of the goodness of their heart. It's important to understand the Terms & Conditions (though we rarely, if ever, read that boring stuff - but should.)
The pros of a 0% credit card:
It's 0%! Yes, that is the most obvious. If you are considering a balance transfer, then 0% is much better than 29% (yes, there are credit cards that charge that and sleep just fine).
Debt Consolidation. Depending on how much you are allowed to transfer, consolidating debt onto one card with a 0% interest rate means you can manage your debt and pay it off faster (because, well, all of your payment goes to the principle and none to interest, leveraging more cash.)
Credit Score Benefits (IF well managed). It's true that if you are a disciplined person who will pay down the balance on time, you could improve your credit score.
One-Time Big Purchase. Once upon a time, my fridge died, and I needed to purchase a new one. Using a 0% credit card was helpful. It acts like a short-term "loan" without the cost of a personal loan... so long as I paid it off according to the Terms & Conditions (you know that boring verbiage).
So right now you are probably thinking, "Wow, this sounds great! I am definitely going to open one and transfer with wild abandonment."
Well, before you sign your life away, let's talk about the not-so-great things about a 0% credit card.
The risks of a 0% credit card:
For a Limited Time. 0% credit cards are not forever... they come with a clock. So if you have doubts about your ability to pay it off in full before the clock runs out, this may not be for you.
Yes, there are FEES. Of course, there is a balance transfer fee (typically 3-5% of the amount transferred). The credit card company is a business and hedges its bets that you may pay off your balance at 0%. If you do, they still make a profit of 3-5%. AND when you calculate your balance transfer, make sure to include the fee.
Losing the PROMO. Again, those boring Terms & Conditions. Some offers come with a steep penalty... if you are late, even once, on your monthly payment, that can be grounds for disqualification from the 0% and will start charging the standard interest rate. This would be a good time to automate payments (total amount divided by the number of 0% months)
Hard Inquiry. Yes, applying for a new credit card, even one that came in the mail, offered to you, counts as a hard inquiry and, as such, will impact your credit score negatively, much in the same way opening a new credit card, carrying a large balance, and closing a card can impact your credit score.
Deferred or Hidden Costs. I know, I know, I sound like a broken record... read the Terms & Conditions. Still have questions? Call them and ask. Is there an annual fee? Is the interest deferred retroactively if I don't pay off the balance at the end of the promo? And anything else you can think of to be crystal clear on the Terms & Conditions.
False Sense of Financial Security. Do NOT, I repeat, do NOT, open a 0%, transfer balance, and put that balance away to be dealt with at the end of the promo term. THIS IS NOT FREE MONEY. If you decide to move forward and open this, take it seriously... adhere to the Terms & Conditions, or you may find yourself in a worse financial boat.
Not a Long-Term Strategy. Last thing I am going to say is do not abuse this tool. And don't think of it as a way to not pay interest "all the time". You could end up in a worse situation. Oh, and yes, read the Terms & Conditions (yes, yes, I had to repeat that.)
We are fast approaching the holiday season and the end of the year. If you are like me, you may be reflecting on the year and planning (or setting goals) for next year.
Does a 0% credit card for x number of months help or hurt?
The answer is, if you are disciplined, then maybe this helps, but if you are not, then this is not for you. Be honest with yourself. There is no one-size-fits-all. No one plan that works for everyone.
Bottom line:
If you are tired of money woes and want to try something different, but are not sure if this tool is for you, then working with a personal finance coach can be that partner to guide you.
If you have experienced a financial setback and tried everything you know to build a life with financial freedom, but are still frustrated by the process, then maybe this is a good time to talk to a personal finance coach.
As you may know, I suffered my own financial setback. It took ten years to reach my definition of financial independence, from a starting point of $257,000 in marital debt. I worked with a coach for four months, and it changed my life. It's because of this experience that I am so passionate about helping others do the same.
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