Should You Open a Card With a 0% APR Promo to Help Cover Costs Right Now?
Is it a good idea to cover your immediate needs with a promotional offer?
Credit cards with a 0% APR promotion can be a good tool for paying off a large purchase or an existing debt without interest charges. Especially during uncertain economic times, 0% offers could become a lifeline for some consumers to temporarily help cover costs. But is opening a new card for its 0% APR offer a good move?
What Is a 0% APR Offer?
A 0% APR offer means that you don’t have to pay interest on certain transactions for a set period of time. There are two main types of 0% APR offers:
- 0% purchase APR: A card with a 0% APR purchase offer could help you get through a rough patch by removing interest on what you buy, which could be a benefit if you have big purchases ahead. “This is ideal for large purchases that might take a few months to pay off,” Madison Block, a marketing communications and programs associate with American Consumer Credit Counseling, told The Balance during a phone interview.
- 0% balance transfer APR: It can be a challenge to put a dent in your balance if you’re making sizeable interest payments each month. Moving the balance to a card with a 0% APR can alleviate the interest burden and free up extra cash to pay for essential purchases like food and gas.
While the 0% APR introductory offers on some cards apply for both purchases and balance transfers, don’t assume that’s the case for the card you want to get.
“The 0% may not apply to everything, so it’s important that (you) read the fine print,” Block said.
APR offers range in length from a few months to as many as 20 months. For balance transfers, you may only have a certain time window to make the transfer (typically within the first 60 days of account opening and, in some cases, up to four months), so make sure you verify how long you have.
Pros and Cons of 0% APR Offers
Extra time to pay off debt without interest
Only pay interest on the remaining balance
Access to other rewards and benefits
You can lose your 0% APR
Balance transfer fees
Need good credit to qualify
- Extra time to pay off a debt without interest: This is the main benefit of a 0% APR offer. If you can pay off what you owe before the offer expires, the only cost you’ll pay (in most cases) will be a small balance-transfer fee.
- Only pay interest on remaining balance: Unlike deferred interest offers that apply interest retroactively on the full balance if you don’t fully pay what you owe on a 0% APR card, you only have to pay the regular APR on the leftover balance.
- Access to other rewards and benefits: While not having to pay interest might be what draws you in, you may find the best 0% APR cards have other generous perks like welcome bonuses and ongoing rewards.
- You can lose your 0% APR: If you’re late on a payment or max out your card, Block said, you might lose the promotional offer and revert to the regular purchase APR. With some cards, you may even get hit with a penalty APR, which is even higher than the regular APR.
- Balance transfer fees: “Many times with a balance transfer, even though it will be a 0% APR, there's still a balance transfer fee,” said Kim Hardy, CPA, member of the American Institute of CPAs Financial Literacy Commission. While there are a couple of cards that may waive the fee, the average cost is 3%-4% of the balance you transfer.
- Need good credit to qualify: Cards with the best or longest 0% APR offers and other perks aren’t usually available to consumers with bad credit.
How to Use 0% APR Offers
If you decide to apply for a 0% APR card, your goal should be to maximize your no-interest period. Start with these strategies:
Pay Your Balance Before the Offer Expires
Not paying your balance before the promotional rate ends is a pitfall to avoid.
“You definitely have to keep that end date in mind,” Hardy told The Balance by phone. “It's only a benefit if you pay everything off within that time.”
The simplest game plan is to divide your full balance plus your balance-transfer fee (when applicable) by the number of months in the promotional 0% APR period. So if you purchase a $1,200 appliance on a new card with a 12-month offer, plan to pay $100 per month to get it paid off in time. Likewise, if you transfer a $5,000 balance on a card with a 15-month offer and pay a $200 fee, you’ll need to pay $347 a month to pay it off in time.
If you have sporadic income, you might want to pay more in the months when you have extra funds.
Understand the Fine Print
Besides the 0% APR offer, you should investigate all of the major terms and conditions of a credit card before you apply. A good starting point is the “Schumer Box,” which is the table in your credit card agreement that breaks down the card’s fees, APRs, and other details.
Make sure you’re aware of when the 0% APR offer expires, and what actions might trigger a switch to the regular or penalty rate, such as if you miss a payment or exceed your credit limit.
Finally, look over the card’s other ongoing benefits—rewards, for example—to see if it’s a good fit for your long-term needs.
Alternatives to Using 0% APR Offers to Fill Financial Gaps
While 0% APR offers might seem like a great solution when times are tight, it’s worth investigating other avenues that could help you stretch your budget.
- Explore payment deferrals: If you’re struggling with a credit card debt because of a temporary financial setback, you could reach out to your credit issuer to ask about a deferral. During the COVID-19 pandemic, many lenders are extending these payment breaks to help customers weather the tough times.
Be sure you understand when the payment relief ends and if your balance accrues while you’re not making payments.
- Cash in on stockpiled credit card rewards: If you’re someone who has accumulated points or miles on one of your cards, now might be a good time to redeem them. You might opt for gift cards to help pay for groceries or cash back to pay a bill. Even if it means sacrificing the best value for your points, it could prove to be a lifeline.
- Try to tighten your budget: Try to reduce the expenses that aren't necessities, said Hardy. For example, the small monthly charges you pay for subscriptions can add up. If you can cut back on such extras, you can repurpose that money to pay for more immediate needs.
- 0% APR offers can apply to purchases, balance transfers, or both.
- Balance-transfer offers require you to make your transfer within a certain amount of time; usually 45 days.
- Unlike deferred-interest offers, you only pay interest on the balance you have left after the 0% offer ends.
- Late payments may nullify your 0% offer and trigger a penalty APR.