The holiday shopping season is upon us and merchants are once again trying to entice shoppers to spend more than planned. From the cleverly worded ads to the special financing offers, merchants are doing everything possible to lure us into their store. One of the most common financing offers are 0% interest credit cards. At first glance, these cards appear to be an attractive offer but if you dig a little deeper (i.e., read the fine print) you will find their hidden faults.
What to look for in 0% interest credit cards.
How long does the 0% interest last?
Most of these cards only offer 0% interest for a short period of time which is generally 3 to 6 months. Once this period of time is over you will be charged a much higher rate of interest. Unfortunately, the credit card company does not always make it easy for you to find out how long the introductory period lasts so be sure to read the fine print of the offer.
What is the interest rate once the 0% interest is over?
Once again, you will need to carefully read the fine print to determine what the interest rate will be once the 0% interest no longer applies.
Can you transfer other credit card balances to the 0% interest card?
Many of the 0% interest credit card offers will not allow you to transfer other balances during the introductory period. If the initial offer indicates you can transfer balances, be certain to find out if the balance can be transferred during the initial introductory period and if there is a fee associated with the transfer.
What are the penalties and fees associated with the card?
The penalties and fees associated with 0% interest cards can prove to be the biggest pitfall of the card. Most of the cards will charge you a high fee for late payments as well as automatically transfer you to the higher interest rate. Another penalty may be imposed if you fail to pay the balance of the card within a specified amount of time. Generally, this penalty is the full amount of interest (at the higher rate) for the initial balance, regardless of how much you have paid. Here is an example of this scenario:
The Best Purchase store has an offer indicating you can purchase any item priced above $300 for 0% interest for 90 days. So, you go to the store and purchase a new DVD player. You charge the purchase on your new Best Purchase credit card. The first two months you make your monthly payment on time. Unfortunately, on the third month you are one day late with your payment. On your next monthly statement from Best Purchase, you discover that you have been charged 21% interest on the entire $300, despite the fact that the current balance is $100.
Is there anything good about a 0% interest credit card?
Actually, these cards are not completely bad. If you are able to play within the rules of the card and take advantage of the 0% interest, you will save money overall. The important thing is to understand the rules (i.e., read the fine print carefully) and abide by the rules.
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