Although getting a 0% APR credit card isn’t going to initially affect your credit score or damage your financial outlook. It’s likely to even be a really great deal if you appropriately manage the new line of credit! You need to make sure you’re getting the best deal possible, however, so that you can maximize the savings this type of credit card can provide.
Here’s how you’re going to do it.
Make sure that you qualify for the card first. When you apply for a credit card, this is considered a “hard” credit contact by a lender. You want credit and so the lender looks at your credit history to determine if you qualify. If you do, then this contact doesn’t affect your financial profile. If you do not qualify, however, you might find that your credit score drops up to 10 points for every hard contact that is made. If you don’t have a credit score above 680, then you might not want to assume the risk of an application.
Don’t spend more than you plan to spend. The rewards that a 0% APR intro credit card can provide can be pretty enticing. Who doesn’t want a free vacation? Or a new 50 inch television? Or a VIP experience at a concert? The only problem is that these rewards are often based on spending limits within a certain period of time. If you spend more than you can afford to spend, then balances that roll over and interest charges will quickly eliminate any profitability from the equation for you.
Manage your credit card now as if the introductory APR has already expired. A number of credit cards that have a 0% intro APR often have annual fees and higher interest rates once the introductory period has expired. The annual fee might be waived for a year or two, but having an APR of 19.99% or higher is pretty common today. That can bring some sticker shock on a purchase right away! Start managing your credit card as if these charges are on it immediately and you’ll be able to experience a better financial advantage.
You might even consider taking less of a perk up front to receive better conditions over a long-term basis.
Pay off your debt before the introductory period ends. Don’t even bother to transfer a balance or make a purchase on your 0% intro APR card if you aren’t going to be able to pay off the debt before the last day of your introductory period. You’ll ultimately end up paying more for the transferred debt in the long run because you’ll likely end up paying a higher interest rate than before and have transfer fees of 3% or more as well.
If you have a high balance to transfer, also make sure to speak with the lender in person or on the phone first. Most lenders have a limit to how much debt they’ll actually accept.
Make just one big buy if you need something. The trap that so many people find themselves falling into is that they end up buying more things because the 0% APR seems like such a good deal. They go outside of their monthly budget and then have to adapt to higher monthly debt payments because the purchases can’t be paid off. Get that appliance or other big ticket item.