Competition among credit card companies is making zero interest credit cards commonplace. But are these cards always a good deal for consumers?
Remember that credit card companies aren't in the business of offering something for nothing. Statistically speaking, they know they'll make money on such offers.
So those who apply for zero-interest cards need to understand the details behind that great low rate.
Here are some questions to ask before you apply.
Will you likely qualify for the zero percent rate?
Consumers are barraged with mass mailings that offer rates "as low as" zero percent. Consider that students with no income and no credit history regularly receive such mailings.
But when an underwriter is reviewing your credit card application, tougher standards will apply. If your credit score isn't stellar or your income doesn't reach certain levels, you may not be offered the "teaser" rate.
Does the rate apply to balance transfers, purchases, or both?
If the no-interest rate only applies to balance transfers, you may want to avoid purchases with the new card. In addition, some card issuers apply payments to balances with the lowest interest rates first. That means you'll have to pay off any transferred balances before payments are applied to new purchases.
What's the duration of the zero-interest rate?
Some companies offer their introductory rate for three, six, twelve months or more. After that, the rate may skyrocket.
If you're not careful to pay off the card before the introductory period ends, you may be charged exorbitant interest on the remaining balance.
What are the penalties for late payment?
If you're late on even one minimum payment, the zero percent rate may disappear. In addition, the credit card agreement may allow the issuer to raise the card's rate if you fall behind with any creditor.
Are there minimum use requirements?
For example, some issuers require that you use the credit card at least once a month. Otherwise, you'll be charged fees, penalties, or even a higher rate.
As with any financial transaction, it pays to know the details. It also makes sense to know your own purchasing propensities. Zero-interest credit cards can be a great way to manage debt. They may also lead to greater worries.
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