What is 0% interest rate on a credit card?

As you work on your credit, you’ll start noticing more and more offers coming your way. Financial institutions wish to do business with individuals who have strong credit scores. You might start getting offers in the mail, or the occasional phone call from their sales associates, offering you 0% interest on balances transferred from other cards, as a consequence, it can seem like an overwhelming decision to make. 0% interest rate sounds like a great deal, but is there a catch?

What To See

0% interest rate is alluring, and the credit card firms know that. But with most deals that sound too good to be true, there’s usually a catch.

Read The Details

Sometimes, your 0% interest rate comes with the condition that you must pay that transferred balance off first. So, your monthly payments on your new card go to the balance that is not being charged any interest, while any new purchases on the card will sit there accumulating interest until you’ve paid off the transferred balance. Unless you pay off your transferred balance quickly, the interest on any new purchases will add up.

Your 0% interest rate on balance transfers will also expire after a period of time. Once this happens, any balance that you still have will start accumulating interest, which is often astronomical. This means, that if you can’t pay off your balance within the grace period, it could be cheaper to stick with your current card, depending on your interest rate.

Why Lenders Have These Offers

Lenders present these offers for a reason. They are for-profit corporations who know the credit industry inside and out. Everything they do is designed to maximize their profits, and the 0% interest offers are no different. The majority of people who transfer their balances to a 0% interest card don’t pay their transferred balance down before the grace period is over. These offers always sound exciting, but they often lead to increased debt while promising to do the opposite.

The Bottom Line

If you’re ready to finish off your debt, and you have the self-discipline and are willing to sacrifice, these 0% interest offers can be used to your advantage, all you have to do is stick to a budget, don’t use your new card for any new purchases and pay down the transferred balance within the grace period. If you follow this guideline, you could save yourself a great amount of money on interest.

As is the case with any new card, make sure you read all the fine details of your contract, so you know what you’re getting into.

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