Too many of the 0 interest credit cards mean only one thing – debt. For those with good money management skills, however, taking advantage of offers for 0 interest credit cards can lead to savings. Before taking this route you need to learn how to use this bonus wisely. When using a 0 interest account you will plan to transfer a balance from an old account.
The goal is to pay off that debt during the time you are enjoying the benefit of NO interest charges. So, what account balance would you transfer? Would you transfer several small balances in order to have fewer payments due each month? Would you transfer part of your highest balance card? No! The highest interest account is the account that needs to be transferred and paid off.
0 Interest Credit Cards Require Good Credit Rating
It’s important to accept that qualifying for a 0 interest account requires a good credit rating. If you know your credit is shaky or know you have bad credit, this is not the card for you. Applying for credit cards and being declined only hurts your credit rating.
Credit bureaus will see you as someone applying for any and all credits lines he can get and they label that behavior as a high risk. Ok so far? Now look online for banks offering this special no interest credit and look for the longest term that is offered. Many will have a six month window of 0 interests but there are a few offering up to one full year at no interest.
Let Me Give You an Example
Think what this means to you. If you owe $5000 on an account at 21% interest and pay $175 a month as a minimum payment, one half of your payment will be applied to interest. It will take you 180 months to pay off that $5000 and you will pay $4742 in interest during that time. The purchases you made with that $5000 in charges will end up costing you almost $1000. Is it worth it? Of course not!
If you transfer that balance to a card that offers zero interest rate for a full year and pay only that same $175 each month, you will pay off $2100 of that original $5000. The difference between paying a fix payment monthly on debt as opposed to paying the minimum due each month (which declines as the balance is reduced) is a shock to many consumers.
People who use the 0 interest to the max have the goal of paying off the high interest debt in full during the 0 interest time frame. In the example above, if you could find a way to make a double payment each month ($350) instead of $175 you would owe only $800 at the end of the year. How hard would it be to pay off that amount? What if you don’t have debt on your other cards? Is this special type of credit card still useful to you? It sure can be.
Savvy Managers Method For 0 Interest Credit Cards
Another method used by savvy money managers is to open a 0 interest account that offers cash out option also covered by the special interest rate. They pull out the maximum cash available and make regular payments on the new account through the entire period of the special rate.
The cash pulled out is deposited into an account with the highest interest rate they can find. Just before the special rate expires take the money from the savings account and pay it back (no interest there). Depending on how high your cash limit was you just made a few hundred dollars for a few minutes of money management.