Many credit card issuers offer a promotional period that allows you 0 percent interest on your purchases or balance for a certain period of time. These offers may be issued by a retailer or even on a major credit card when you’re transferring a balance.
While zero-interest promotions can be helpful and great to take advantage of, they aren’t free-for-alls that should encourage you to spend recklessly. Here are five reasons why you must take these kinds of offers carefully and use them strategically:
- The interest may be zero, but the payment often isn’t. During the time that you have no interest charged against the balance, you will often still be required to make a payment of some kind. If you can’t afford to make that payment, you will get late fees and it will reflect poorly on your credit. Often, these minimum payments are less than you actually should pay in order to zero out the balance by the deadline, so you need to consider this as well.
- Interest can start to be charged if you don’t pay as agreed. If you miss a required payment during the zero-interest period, your card’s terms may then allow for an early end to the promotion.
- The interest may be accruing. On some of these offers, the interest isn’t so much gone as it is hiding, waiting for you to reach the final date of the interest-free period. If, by that date, you haven’t paid off the balance in full, all of that hidden interest may be added to your balance making it not so interest-free after all.
- There may be an added fee for the transferred balance. You could be charged as much as 3 percent of the transferred balance, even if the card offers zero-interest for the transfer.
- The interest may only be free for certain purchases or balances. On a zero-percent interest transfer the offer will generally only apply to the balance you transferred, not to any new purchases made on the card. And on a retailer’s offer, it may only apply to purchases above a certain dollar amount.