Do You Need a 0 Interest Credit Card?

Nothing seems to excite today’s consumers more than the number 0—0 calories, 0 emissions, 0 money down. But do you really need (or even want) a 0 interest credit card? Experts answer with a qualified “yes.”

Credit cards with a 0% APR can save you money if you choose a card wisely, develop a plan to pay off your balance, and have the discipline to follow your plan. Without those safeguards, you may find yourself facing steep penalties—including paying interest that’s much higher than zero.

In its simplest form, a 0 interest credit card is one in which you aren’t charged any interest on purchases, provided that you understand—and can abide by—certain conditions. Zero interest credit cards:

• Offer 0 interest for a limited time only.
• Typically offer it for only one of two possible purposes.
• Demand the discipline and wherewithal to pay off the balance by the end of the 0 interest period—or you may face penalties in addition to interest.

First, all of these cards offer 0 interest only for a limited time. The Credit Card Accountability Responsibility and Disclosure Act—yes, the CARD Act—of 2009¹ requires that you have at least six months, but card issuers competing for your business may offer you between 12 and 21 months.

After that period expires, interest charges, as defined in your credit card agreement, will apply. Still, if you pay off your credit card balance during the 0 interest window, you are, in effect, borrowing money for free.

Second, most of these cards are designed for only one of two purposes.

• Purchases. Some apply the 0% APR strictly to purchases made with the card. These cards can be invaluable if you’re planning a major purchase (such as a washing machine, stove, or laptop) or face an unexpected expense (such as a major car repair). Rather than having to come up with the total amount all at once, you can pay for it in installments over time without spending more than if you paid on the spot in cash.
• Balance transfers. Suppose that you have a card with a $2,000 balance. Some portion of your monthly payment goes toward the principal, but the remainder is interest. When you transfer that balance to a 0 interest credit card, 100% of your monthly payment goes to the principal, helping you get out of debt faster.

Few cards apply the 0% APR to both purchases and balance transfers. So, if you use the card for something other than its primary intent (if you make a purchase with a card intended for balance transfers, for example) you will be charged interest on that transaction. If you want to use one card for both purposes, you may have to shop very carefully. And keep in mind that you will also be charged interest (and typically higher interest than for either purchases or balance transfers) if you use the card for a cash advance.²

Whichever card you choose, you won’t gain the benefit of having a 0 interest credit card without discipline. You’ll want to resist the temptation to buy more than you can afford just because you know you won’t have to pay interest.

You’ll also need the discipline to pay at least your minimum monthly payment on time, and to pay off the full balance during the 0 interest period. You will pay interest on any balance that remains when your interest-free ride ends. Plus, many card agreements permit the issuer to end the 0 interest period early if you make a late payment, miss a payment, or exceed your credit limit.³

If the 0 interest period ends because you violated the terms of your agreement, you may have to pay penalty interest rates that can be as high as 29.99%.⁴ So it’s wise to read the fine print!