You've probably received offers in the mail for credit cards with 0% interest for balance transfers, or for purchases, or for both. These sound like great offers, and they can be, but you have to be careful. There are several ways the credit card companies can trip you up. If you do decide to accept a 0% interest offer, the following tips will help you avoid some common traps:
1. *Pay on time*
It is vitally important that you pay your bill on time every month. If you look at the fine print on the credit card company's offer, you'll see a provision that says that if you are late making a payment, the credit card company reserves the right to cancel your 0% rate. Some companies raise the rate to as high as 25%!
To make matters worse, some companies are slow in posting your payment. So you could think you've paid on time, but then the company might claim they didn't receive the payment until after the due date.
Here are some ways to insure that your payment is not late:
-- Consider using auto-pay. With auto-pay, the credit card company will take a certain amount of money directly from your checking account each month to pay your credit card bill. You can choose to pay the minimum amount, the full balance due, or another amount you specify. The advantage is that you will never be late with a payment, even if you overlook the bill. To set this up, call the customer service number on your card, and the company will send you a form.
-- If you pay your bill by mail, send it a few days earlier than you think you need to. To be safe, send your payment at least a week before the due date.
-- If you pay by computer, keep in mind that your payment won't post instantly. Read the rules online to see how far in advance you need to pay.
-- If you do mess up, and pay late, call the company's credit card number, and ask them not to raise your 0% rate. Simply calling and asking often works, especially if this is the first time your payment was late.
-- If you know that you tend to make payments late, or if you think it would be too stressful to have to worry about getting your payments in on time every single month, you would probably be better off not accepting a 0% interest offer.
2. *Transaction fees*
Another way that credit card companies can get money from you even if you have a 0% rate is by charging you transaction fees on balance transfers and cash advances. Read the fine print to see if there is a transaction fee, and if so, how much it is. Transaction fees will hike up the actual interest rate you are paying, especially if you pay off the balance quickly.
For example, if you have a 0% interest rate and a 5% transaction fee, and you pay off the balance in two months, you are actually paying interest at the rate of 2.5% per month, or a whopping 30% per year.
Companies tend to bury information about transaction fees in the fine print, so you have to look for it carefully.
If you want a true 0% rate, look through your offers to find the cards that don't have transaction fees, and pass on the ones that do.
3. *Watch out for the offer's ending date*
0% offers are only good for a certain length of time, and then any unpaid balance will revert to whatever your usual rate is.
Companies sometimes use confusing language to describe how long the offer will last. They'll say things like, "The rate is good until the first day of your billing period that ends in December." You have to figure out what they mean.
If you don't expect to have the balance paid off before the ending date, mark your calendar to remind yourself when the last month of the 0% rate will be. That way, you can transfer the balance over to some other card offering a special rate before the rate is raised.
4. *Payment goes towards the 0% balance first*
This is a clever trick the companies use. If you get a 0% balance transfer and then use your card for purchases or cash advances, the purchases and cash advances will have a higher interest rate.
For example, say you get a card which offers 0% on balance transfers, but 15% on purchases. Say you make a $1,000 balance transfer in response to a 0% offer. Then you go to the store and buy $200 worth of groceries. When you get your bill, you pay $200. That $200 will NOT go towards the grocery charge. It will go towards the 0% balance transfer. If you pay $200 each month, it will take you five months to pay off the balance transfer. In the meantime, you will be charged interest at the PURCHASE rate of 15%, not at the 0% rate, for the $200 you spent for groceries for the entire five months.
The best way to get around this is to use your 0% card ONLY for the 0% balance, and use a different card for your purchases or for any cash advances.
If you do everything listed above, you should be able to have a true 0% interest rate. But there is obviously some work involved, and not everybody wants to read fine print, keep an eye on the calendar, use separate cards for different types of transactions, and be totally scrupulous about paying on time. If you think it's too much of a hassle, or if you know yourself and know you're not going to actually do all that stuff, you're going to end up paying more than 0% -- sometimes a lot more. The companies are hoping you mess up -- that's how they make their money on these offers -- so you have to consider whether the extra vigilance required is worth it.
