Owning any credit card is like owning a double edge sword, there is always a good side and a bad side and even at times an ugly side. However, in this article I’m going to be discussing the pros and cons of owning zero percent credit cards.
You’ve heard of them, the credit cards zero percent interest for 6 months. These cards are found almost everywhere from outlet stores to major credit card companies. If you’ve been considering owning these types of cards you may want to read this post first.
There are a lot of benefits to owning a zero percent card, some obvious and some not but here are the good things you should look for in these cards. Also all the benefits I mention may not be available on one particular card.
- No interest for 6 months. This is the typical reward for these kinds of cards. The way it works is you can buy stuff with card and you have six months or whatever time limit they give you to pay off the balance in full before they tack on any interest.
- No interest on balance transfers. A lot of zero percent credit card offers also allow no interest on any balance you transfer from one credit card to the new card. The benefit of doing this is that it will give a lower interest rate on you balance you held with a previous card. There is also a time limit with this as well, usually around 6 to 12 months.
- Zero percent interest credit cards buy you time. The greatest benefit of owning this card is that it buys you time to pay off the principle amount you owe without getting slapped with some huge interest rate. This time could prove very valuable for example if you bought $2500 of furniture but couldn’t pay it back in one month but instead purchased it through your card and paid it back over a six month period you wouldn’t pay a dime in interest. Not Bad.
Now that we know some of the great benefits of owning zero percent credit cards, I’m going to cover some of the downfalls of them.
- Pay off the balance before time is up. Since the zero percent credit card offers come with a time limit of when the interest will be applied it’s a good idea to have it paid off before the time period is up. I say this because credit card companies a beginning to get a bit fierce with their interest rates. Since the new credit card laws are coming into effect the companies are looking for new ways make up for the loss. So how do they fix it, up your interest rate, in fact I’ve heard of one company up their rate to as high as 80%. Ouch!
- Don’t transfer unless you plan to pay it off. As in the last point with paying off your balance before the time period is up holds true with zero percent balance transfers as well. The interest rate here again could skyrocket as a result of not paying it off before the time limit is up.
Now it’s on to the ugly side of zero percent credit cards. Before I go any further I should say that I’ve seen people go through this situation and it isn’t pretty but, if you play by the rules and do what I’ve said above you’ll be fine.
If you want to avoid this scenario just keep them paid off and you’ll be fine. The problem comes in when you rack the card full of debt. In fact you have so much debt that you can’t afford the payments because of the high interest rates on them.
So what do you do, you transfer the balance to another zero percent credit card to cut the rate down. With the rates lowered you start spending again and then you stack that card full of debt until it becomes a giant circle of revolving debt transferring the balance from one card to another never paying off any of the debt.
I’ve seen people to the point where they had so much debt on their credit cards that even if they made the minimum payments on all of the cards they still wouldn’t be able to come out ahead.
Follow the rules I’ve laid out and you’ll be fine. Don’t follow them and beware of disaster. Zero percent credit cards are great cards to have for cutting off the interest off the payments, however if you find yourself getting out of control stop using them before it’s too late. Abstinence is the best cure form credit card debt.
To check out more articles like this go to Million Dollar Journey.