Zero Percent Credit Cards

Zero percent credit cards, you say? How does that work? Just imagine a world where banks give out credit cards with ceiling-high limits and don’t require you to pay any interest. You can just charge to until your heart’s content, paying the monthly minimum, and not pay any interest charges. Does that sound too good to be true? That’s because it probably is. So, now that you understand that, you also need to know that there are a few ways to use zero percent credit cards wisely as part of your financial management program. So what are zero percent credit cards?

Zero percent credit cards are just what their name implies – they don’t charge any interest. However, if you think about it, because all banks make most of their money off of interest charges, how could they possibly be offering interest rates of 0%? To put it simply, they can’t. Or at least they can’t for very long. That’s why most of the zero percent interest credit cards that banks issue only offer this extremely attractive rate of 0% for a very short period of time. Plus it usually only applies to certain purchases and only if the consumer can pay on time during the period of the special rate. Once the special introductory-rate period has ended, the interest rate for the remaining balance of the card will usually go up to an even higher level than you would normally find on a traditional credit card.

Somewhat disappointed now? Keep reading. Zero percent credit cards can be a great tool for you if you are a wise and disciplined consumer. Here are some ideas about how you can utilize zero percent credit cards as part of your financial management system:

Most zero percent credit cards will only remain at zero percent for a very short term, which will usually be around three to six months. Don’t even consider one of these cards if you are not sure that you can pay off the balance before the zero percent offer ends (see next paragraph). If you’re sure you can pay it off, then you should definitely consider this option! However, if you’re not sure, then you may want to wait, because once in a while you can find a zero percent card offering a 0% rate for a period of a year or more. If you’re lucky enough to find a card like that, then you should take advantage of the opportunity.

As was mentioned above, your introductory term for most zero percent credit cards is going to be pretty short.  Once your initial 0% period ends, the rate will go up, sometimes an astronomical amount. In some cases, you might even have to pay the higher interest rate on the entire balance. That means that you might have to pay whatever interest you might have owed had you not had the 0% deal from the beginning – you’d end up paying a very high rate for everything, as if the initial 0% deal didn’t even exist. So if you pay off your balance early, you won’t have to pay anything. But if you don’t pay it off early, you’ll owe the total amount, including the higher interest rate. That’s why it’s so very important that you pay off the balance of your zero percent card BEFORE the higher interest rate kicks in. If you think that there’s even a possibility that you might not be able to pay the balance off early, then don’t risk it. Don’t even apply for the card.

If you want to become a true financial wizard, then follow this approach. This is where the true wizards achieve the most benefits from a zero percent credit card approach. Imagine this situation: You take your zero percent credit card and use it to buy something for $2,000. You know that your rate will rise in six months and are already planning on paying off the entire balance right before the expiration of the six-month term. But, in the meantime, you invest $2,000 of your personal money in a money market account that pays 5%. After the six months have ended you’ll pay off your card and you’ll also have an extra $50 (your investment proceeds) in your pocket, as well as the item that you purchased and a debt-free life. Now that doesn’t sound too bad, does it!

Now that you’ve read all of that, there’s one more credit card help tip you should probably take heed to: the easiest way to constantly have a “zero percent credit card” is to simply pay off the balances of your standard credit cards every month. This ideology will turn almost any credit card into an interest-free card, and keep you financially independent.