When does clock start ticking on 0-percent card deal charges?

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question Dear Opening Credits,
If I get a credit card with a 0-percent APR for 12 months, make a purchase of $500 and then pay it back within a couple of months, then make another purchase a few months later, do I still have a year to pay it back or is the deal only a year from the time the card is activated? Another way to word it is, what if I activate a card with a 0-percent interest for a year on purchases, but don’t use it until 10 months after I activate it – do I still have a year to pay it back or do I only have two months to pay it back before accruing interest? – Justin

Answer

Dear Justin,
Great question! The credit card issuer doesn’t start the 12-month clock with your first charge. Depending on the terms of the card you opened, you either have 12 months of no interest from the date the card account is opened or 12 billing cycles (which begins with the first billing closing date). To make the most of the deal, it is best to pay for something you want to finance over time soon after you’ve been approved for the account.

For example, let’s say you get the new card and it comes with a $1,500 credit limit. You immediately charge a $1,000 television to the card. You could have either 12 billing cycles to repay that $1,000 without incurring interest ($83.33 a month) or 12 months from when the account was opened. If you don’t know or don’t remember exactly how the card’s 0-percent deal works, read the terms that come with the card or call customer service (the number is usually on the back of the card). Once you find out, just make sure your balance is $0 by that deadline. 

During that 0-percent interest promotional period, let’s say you also decide to get a new $500 TV cabinet three months later. You can add that to the card, too, but now you only have nine months or billing cycles left to repay the entire balance without incurring interest.

After the 12-month, interest-free promotional period expires, any balance remaining will start accruing interest. Once that happens, work fast to pay it off, and then treat any future credit card transactions as you would cash by charging only what you can afford to repay at the end of the month. Credit cards come with a grace period of about a month, so if you bring the balance to zero when the statement is due, you can continue to avoid paying interest on your purchases.

Of course, there may be occasions when you do choose to pay a charge over several months instead of all at once. Just know that the longer you drag out payments, the more you’ll end up paying in interest charges.

Just don’t get caught in the minimum payment trap. If you were to pay just what the credit card issuer requires to keep the account in good standing, it could take many years and cost you a bundle to repay a high balance. For example, let’s say you paid off your interest-free balances during the 0-interest promotional period, but then added another $1,000 balance later at the card’s regular APR, which we’ll say is 18 percent. It would take 62 months to pay off your debt and add $538.66 in interest charges if you only pay the minimum payment.

That’s why it is always best to pay more than minimum payment when paying over time and have a repayment plan in place to finance larger purchases before you put them on your card.

The same holds true for your new 0-percent card – if you pay only the minimum amount due listed on your card statement each month, you’re more than likely going to get hit with interest charges at the end of the 12-month period. It’s important to do your own math to figure out how much you need to pay each month to bring that balance to $0 after the promotional period expires.

See related: Oops! I bought something with my 0-percent balance transfer card, Don’t confuse introductory rate, deferred-interest deals

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Updated: 11-22-2017