Today I wanted to address a different type of credit card debt- the zero percent interest credit cards. They can be an excellent tool for advanced credit card users. In fact many savvy credit card users will take advantage of balance transfers to a zero percent interest card and save on their monthly payments as a result. However, they can also be another debt trap if you do not use them wisely.
Why on Earth would a credit card be offered to you with zero interest? There are many reasons. Below I will look at some of the reasons as to why zero percent interest credit cards are offered along with my thoughts on debt reduction:
The zero percent interest rates are usually temporary
For some this might come off as obvious but for others it’s still a surprise. The credit card industry has become ridiculously competitive over the last few years and the companies are working harder than ever to keep current card holders and even harder to find new ones.
Don’t get too excited about an introductory rate that WILL change after a few months usually. If you don’t want to be hit with a nice interest payment in a few months then you need to stay updated and informed with any chances that might happen to your credit card rate.
Unfortunately the onus is on you to stay update with your credit card interest rates. When you sign that shockingly long agreement you are in fact agreeing to all sorts of different things. One of the things you agree to is that your interest rate will change in the future.
Purchases are typically more liberal with this credit card
When you know that your credit card has a 0% interest rate then you can be a little more liberal with your shopping. You don’t have to worry about dealing with the 18% interest rates. I’m not saying that this is the case but it does happen often. The lack of an interest rate reduces a barrier and clears our minds a bit.
You must remember that even if your interest rates are low that you will still have to pay back the money for all of the stuff (or junk) that you buy. You will be fortunate in the sense that you won’t have to pay interest but that doesn’t mean that you won’t regret buying every season of Lost on DVD.
The company wants to keep you as a customer
When a specific store offers credit cards that come with zero percent interest then it’s usually done to build customer loyalty. For a regular shopper that may stop into the store once a month this sounds strange. To a business person that frequently buys business supplies from an office store or a construction manager that shops at a home renovation store, it is the perfect option. Instead of losing your business to another major retailer the company offers you a great deal on their in store credit card so that you stick with them.
Do not feel that you have to make all of your purchases with the retailer that has given you the zero interest credit card. You should shop for value. Is the retailer giving me the best price? Am I receiving the best customer service I should be? Do they do price matches with competitors? These are just some of the issues that need to be addressed before you decide whether the retailer is right place for you to shop. Don’t let any of their introductory in store zero percent credit cards influence you too much.
A little side note: I’m not all negative and naive guy so don’t worry. I will have a post up soon on how you can optimize your credit cards for the more advanced readers at Studenomics!
It’s time to hear about your positive or negative stories with the zero percent interest credit card! Are the zero percent credit card as beneficial as most think they are?
photo: sbisson
{ 6 comments… read them below or add one }
No kidding they’re only temporary. Like those Don’t pay any interest until 2012 commercials for furniture. Then you start paying 29% interest or something like that.
I’ve had a postive experience with these cards. I was already planning to get out of debt and making serious progress before I learned about 0% interest cards. Then, I transferred the balance and was able to continue paying down the debt while being charged less in interest. I think the key is that I was committed to a debt reduction plan prior to applying for the card.
If you understand all of the terms for the card and you have discipline then a 0% card can be a great way to help with debt and even earn some money and points if done correctly.
But it all comes down to the individual. If you are one to go crazy with your credit cards and rack up debt then a 0% card could put you further in a hole!
Credit cards that features 0 percent interest is a great way to make a expensive purchase that you intend paying off in a few weeks. This type of credit card is a much more convenient alternative then those cards that have a great deal higher interest rate or applying for a bank loan.
I received a 0% interest rate on my HomeDepot credit card when I made a purchase above $299. I didn’t have to pay the amount for a year (6 months is the norm now). Home owners always have projects to do around the house. I put my water heater charge on the card and didn’t have to pay for a year. Even better, if you are considering to redo your tiles, some HomeDepot stores will charge your card for the labor and you won’t have to pay the labor costs up front.
@ Sanjay Sharma
Yes 0% interest credit cards can be very beneficial if you know what you’re doing. The problem is that they often entice impulse spenders to immerse themselves in a very relaxed mind frame towards making credit card purchases. Any other thoughts on your experience with Home Depot? What did you do with your savings?