Should You Use a Credit Card 0% Deal for Holiday Expenses?

Holiday Shopping With a 0% Credit Card Deal

A shopper considers signing up for a 0% offer to financing her holiday shopping.
•••

sturti / Getty Images

According to the National Retail Federation, 87% of American families plan on celebrating the holidays this year, spending an average of $998 on gifts, food, decorations, and other holiday items. That’s a hefty price tag. 

Credit card companies know this too, which is why you may notice more 0% APR offers in your email or mailbox. Using a credit card for holiday expenses isn’t necessarily a bad thing. But, in order to come out ahead in the deal, you’ll need to know how these offers work, what the pitfalls are, and how to plan to pay off your balance before the 0% APR period ends. 

How Do 0% Credit Card Deals Work?

There are two types of 0% deals for holiday shopping you might see.

0% APR Credit Cards

Most 0% credit cards from banks and credit unions are in fact 0% APR credit cards. For a certain number of months, you won’t pay any interest on purchases you make. After that, it’ll work just like a normal credit card; you’ll pay interest on any balances you have. 

For example, if you open a 0% APR credit card with an 18-month 0% APR offer, you won’t pay any interest on purchases for those first 18 months—that includes any purchases from your first purchase all the way up to anything you buy until the end of the 18th month. But, the following month, you’ll owe interest like normal. 

Zero-percent  APR deals aren’t limited to purchases, though. Some cards provide 0% APR for balance transfers. With these cards, you move a balance from an account you already have and pay no interest on that balance until the 0% period is over. Make sure the card you’re interested in for holiday purchases offers 0% on purchases and not only on balance transfers.

In some cases, you’ll find a card that offers a 0% period for purchases and balance transfers.

Deferred Interest Credit Cards

Deferred interest cards are commonly offered by big-brand retailers like Pottery Barn, Lowe’s, and Best Buy where you might make large purchases. They use terms like “special financing,” “no interest if paid in full by X date.” Cashiers often pitch these cards when you’re checking out. 

These cards can be a trap, so it’s important to know how they work. Like true 0% APR cards, they don’t charge interest for a certain number of months. However, if you don’t pay the card off before the end of the 0% period, the issuer charges you the interest you would have paid without the 0% offer, going all the way back to the date of purchase. 

So, you won’t save yourself any money unless you pay off a deferred-interest card entirely before the end of the promotion.

If your credit isn’t the best, it’s often easier to get approved for a deferred interest card. If you’re diligent about paying off the balance, these cards can be an important tool for building credit while affording purchases now. 

How to Successfully Shop With 0% Deals

Since 0% deals are only temporary, it’s important to get as much value from them as you can. Here’s what to look for.

Shop Around

It’s easy to say yes to a cashier offering a deferred-interest card if you’re already checking out at a store. After all, who wouldn’t want to leave with all those goodies, and not have to pay for them right away?

But if you think you could really use a 0% APR offer, it’s best to comparison shop first. That way you find the best deal for you, rather than just saying “yes” to the first company to offer you a 0% offer. 

Look for Long 0% APR Offers

The longer the 0% APR period, the longer you have to pay off the balance. The longest 0% APR offer right now is the U.S. Bank Visa Platinum Card, which comes with 20 months of zero interest on purchases. The Wells Fargo Platinum Card, Citi Simplicity Card, and Citi Diamond Preferred are examples of cards with 18 months of zero interest on purchases. The rest of the cards you’re likely to find will have 0% purchase offers between 12 and 15 months. 

Find Cards With Low Ongoing APR and Fees

Zero interest from the start is all well and good, but what about when you actually have to start making interest payments? If you think you’ll need to carry a balance after the promo period,  factor in how much it might cost you in interest and fees after the 0% APR period ends. 

If you pay your bill in full before the due date, you won’t owe any interest at all. If you make a habit of this, you won’t owe credit card interest ever again. 

Make a DIY Payment Plan

After you’re done making your purchases, divide your balance by however many months you have to pay it off. For example, if you charged $1,000 to the card and it comes with a 12-month 0% APR offer, you’ll at least need to make a payment of $84 each month to ensure you pay it off in time. 

Then, set up an automatic payment for this amount. You can do this with your credit card or through your bank’s bill pay feature. That way, you’ll be sure to get it paid off in time. 

Put the Card Away When You’re Done

It’s tempting to keep using your card after you’ve bought your holiday gifts because there’s no interest charged. But if you keep using your card, it’ll be even harder to pay it off before the 0% APR period ends. So, do what you need to do to remove that temptation. 

Common Pitfalls of Using 0% Deals

Zero percent deals for holiday shopping can seem appealing, but credit card companies aren’t offering them out of the goodness of their hearts. They’re hoping to earn interest from your purchases. Here are some of the common ways you end up with an interest-bearing balance.

Not Paying Off the Balance Before the End of the Intro Period

The biggest pitfall of these cards is not paying off the balance before the end of the 0% APR period. It’s bad enough with a 0% APR card, but with a deferred interest card, it’s more troublesome since you’ll get walloped with a big interest charge on your original purchase. And, once you’re in the debt cycle, it’s easy to just let it continue and keep racking up a balance with even more interest payments. 

Overspending

Since you know you won’t owe any interest, it’s easy to be tempted to overspend. It’s a similar thing with rewards cards, which might tempt you to overspend in order to get rewards like cash back or complimentary hotel nights. However, you’ll rarely come out ahead unless you’re disciplined. 

Penalty APRs

Just because you’re not paying interest doesn’t mean you can skip your payments. If you forget to make a payment or pay late, some cards may end your promotional interest rate and charge a penalty APR of up to 29.99% on current balances and future purchases. A mistake like this could add unnecessary interest payments to your bill, so avoid a penalty APR by setting up automatic payments that cover at least your card’s minimum payment.

If you make six consecutive on-time payments of at least the minimum due, credit card issuers are required by law to remove your penalty APR on existing balances and only apply it to future purchases and balance transfers.

Spending Minimums

Many deferred interest cards come with set spending requirements to qualify. For example, you might have to spend above a certain threshold to qualify for any deferred-financing offers at all. Or if you want a longer period, you might have to buy more things. Some deferred financing offers are only for certain products that the store sells. 

These offers are often designed to get you to spend more money; a bigger balance may increase the chances you’ll have a leftover balance after the zero-interest period ends.    

Higher Interest Rates

Many deferred interest cards charge high interest rates when the 0% financing period ends. That means that not only will you have a higher payment going forward, but you could be slammed with an even higher interest payment too if you don’t pay off the full balance in time. 

How Much Can Save If You Use a 0% Offer for Holiday Shopping? 

Based on The Balance’s research of 91 cash-back, balance-transfer, and low-interest cards offering 0% APR, 15 months is the most common 0% purchase offer you’ll find. 

The following chart illustrates what your payments and interest would be if you used a card with 15 months of 0% APR versus a card with no 0% offer: 

    Card with 15 months of 0% APR   Card with 20% APR
 Purchase amount  $1,000  $1,000
 Monthly payments to pay off in 15 months  $67 $76 
 Total interest paid after 15 months $0   $119
 Total paid after 15 months  $1,000  $1,119

Alternatives to Shopping With 0% APR Credit Cards

Using a credit card for holiday expenses is far from your only option when it comes to the holidays.

Opt for an Installment Loan or Low-Interest Credit Card

If you absolutely need money to cover holiday spending, consider an installment loan. If approved, you’ll likely have all the cash you need as an up-front sum and regular monthly payments. Personal loans typically have lower average APRs than credit cards, too. 

You can also consider a low-interest credit card. These aren’t as cheap as a zero-financing offer, but they could still save you money over a higher-interest credit card if you plan on carrying a balance for more than 15 months. 

Set Up a Holiday Savings Account for Next Year

It’s too late for this year, but it’s not too late to start getting ready for next year so that you don’t have to borrow money. A handy trick is to set up a separate savings account (look for one with no monthly fees) just for the holidays, then deposit money to it through automatic monthly or bi-weekly deposits. That way, this time next year you’ll have a cash balance you can use to make your purchases. 

Key Takeaways

  • 0% credit cards offer zero interest on purchases, balance transfers, or both for a predetermined number of months. 
  • Deferred-interest cards are common among retail credit cards and can be a trap if you don’t pay off your balance by the end of the promo period. 
  • Shop around to find the best 0% offer; don’t take the first one you come across. 
  • Penalty APRs can end your 0% period and charge a high interest rate on existing balances. 
  • Personal loans tend to offer lower interest rates than credit cards and require fixed payments over a set period of time.