Avoid The 0% Interest Trap

As you improve your credit, you’ll begin to notice more and more offers coming your way. Financial institutions want to do business with people who have strong credit scores. You might start getting offers in the mail, or the occasional phone call from their sales reps. Some of the offers will be enticing. There are sign-up bonuses, free items just for applying and sometimes, you'll even get offered 0% interest on balances transferred from other cards, as a result, it can feel like an overwhelming decision to make. 0% interest sounds like a great deal, but is there a catch?

What To Consider

0% interest is tempting, and the credit card companies know that. But with most deals that sound too good to be true, there's usually a catch.

Read The Fine Print

Sometimes, your 0% interest rate comes with the caveat that you must pay that transferred balance off first. So, your monthly payments on your new card go to the balance that is not being charged any interest, while any new purchases on the card will sit there accumulating interest until you’ve paid off the transferred balance. Unless you pay off your transferred balance quickly, the interest on any new purchases will add up.

Your 0% interest rate on balance transfers will also expire after a period of time. Once this happens, any balance that you still have will start accumulating interest, which is often astronomical. This means, that if you can't pay off your balance within the grace period, it could be cheaper to stick with your current card, depending on your interest rate.

Why Lenders Have These Offers

Lenders make these offers for a reason. They are for-profit corporations who know the credit industry inside and out. Everything they do is designed to maximize their profits, and the 0% interest offers are no different. The majority of people who transfer their balances to a 0% interest card don’t pay their transferred balance down before the grace period is over. These offers always sound enticing, but they often lead to increased debt while promising to do the opposite.

The Bottom Line

If you're ready to get rid of your debt, and you have the self-discipline and are willing to sacrifice, these 0% interest offers can be used to your advantage, all you have to do is stick to a budget, don’t use your new card for any new purchases and pay down the transferred balance within the grace period. If you follow this guideline, you could save yourself a great deal of money on interest.

As is the case with any new card, make sure you read all the fine details of your contract, so you know what you’re getting into.

Would you ever consider a 0% interest offer on a balance transfer? Let us know in the comments!