How Do 0% APR Credit Cards Work?

Many people are attracted to credit cards with lower interest rates, so 0% APR credit cards may seem like a sure win for them. However it’s worth learning how these cards work before you apply.

With 0% APR credit cards, you don’t have to pay interest on your purchases. But credit cards only provide 0% interest only for specific periods of time.

Credit cards usually make a 0% APR introductory offer to entice you to sign on. The length of the terms vary. You may get 0% interest rate for just a few months or for a couple years. Of course, the longer the 0% term, the better because you will pay less overall.

After your 0% introductory period ends, you will have to pay your credit card’s standard APR on any balance that you carry over from month to month.

How to Use 0% APR Credit Cards

A credit card with 0% interest, even for a short term, can be very helpful when you are trying to reduce your debt. But you must use the card wisely. Using a 0% interest credit card incorrectly can actually put you deeper in debt.

To help with reducing your debt, you can transfer your current balance to the 0% interest credit card so that you will not be charged interest each month. That will give you breathing room to pay down your debt without the snowballing effect of building interest.

Of course reducing your debt has tremendous advantages for your financial health. It can improve your credit score and open opportunities for more affordable loans and mortgages. It can also help you get on track for other financial goals, such as saving for retirement.

The key to this strategy is ensuring that you can pay down your 0% interest card in a timely way. It will not help your financial situation to only make the minimum payments if you will have a significant balance once the standard APR sets in.

You can also use a 0% interest credit card to help finance larger purchases such as appliances or modest remodeling projects. This way, you can spread out the cost of the project to the term of the 0% interest rate. That can help you stay more liquid with your month-to-month finances.

Dangers of Using a 0% Credit Card

It’s important that you don’t consider the credit limit of a 0% APR credit card as a “free loan.” It is only a temporary benefit. Once it ends, the credit card’s interest can have damaging effects.

If you open a credit card with a 0% introductory APR but with a higher standard APR than your current credit card you could be hurting your financial situation. That’s especially true if you don’t pay off the balance before the introductory period ends.

Also, keep in mind that your credit score does take a small hit each time you apply for credit. So, it’s not advisable to open a number of credit cards, even if a 0% introductory APR is tempting.

Ideally, you’d want to find a 0% APR credit card that also has a standard APR that is lower than your current credit card.

5 Best 0% APR Credit Cards for 2020

• Citi Simplicity Card
• Citi Double Cash Card
• Capital One Quicksilver Cash Rewards
• Chase Slate
• HSBC Gold Mastercard

The Bottom Line

A credit card that offers a 0% introductory period can be very beneficial if you use it responsibly. Some cards offer 0% APR for nearly two years, which can be a valuable financial tool to help get your money situation in shape.

When searching for the best 0% APR card, it’s important to consider the standard APR that you will face once the introductory period ends. Think of both the advantages you will get immediately, as well as the long-term impact.

When you manage a balance on a 0% APR, you can save a significant amount over having a balance on credit card with a standard APR. However, you need to be diligent about paying off your balance so that you don’t get into a downward cycle of debt once the standard APR starts.