Credit cards with 0% introductory APRs can save you a bundle on interest expense. Time flies during that introductory period, however. Before you know it, the zero-interest party is over, and you’re paying high credit card interest again. Here’s what you should know.
It’s the ultimate honeymoon for you and your new credit card: that 0% introductory-rate period when everything seems possible.
But, like a real honeymoon, it doesn’t last forever. When real life and regular rates resume, you could feel a bit of a letdown. But if you went into it with your eyes open, you’ve probably saved some money.
Here’s what you can do to keep rolling your savings once your card’s no-interest period ends.
What you should know when your 0% intro APR period endsIt’s not the end of the world when your 0% intro APR credit card’s period ends. But if you haven’t finished paying off a big purchase or a balance transfer, it is the end of that interest-free ride.
What you do next should depend on how much of a balance you have left, how effective you were in using the introductory period to pay down your balance, and how honest you are with yourself, said Jill Gianola, CFP, owner and financial planner with Gianola Financial Planning and author of “The Young Couple’s Guide to Growing Rich Together.”
There are basically three scenarios when your interest-free period ends:
- If you ended up with a higher balance, then getting another 0% credit card is not a great move, Gianola said. “Chances are you’re just going to keep digging yourself in deeper and deeper,” she added.
- If you’ve made only a little headway in paying down your balance, it might not be worth it. With most cards, transferring a balance comes a fee that’s typically around 3% of the amount you want to transfer – and add that to the cost of the annual fee, if there is one. If you’re not saving more than that in interest, you might be smarter to keep that balance where it is and budget making larger payments until it’s gone.
- If you’ve paid your balance to $0, good for you. Now you get to decide if you want to keep the card. Ask yourself these questions: Does it offer usable rewards you enjoy? Does it have an annual fee? And if it does, do you believe the perks are worth more than you pay?
You also want to think about how closing the account could affect your credit profile. If it’s your only card without a balance you probably want to keep it. But if it’s a fairly new account, you’re not carrying balances and you have plenty of other available credit, you may not need it.
See related: How to cancel a credit card
What happens if you have a balance left after the intro period?
This is kind of like running out of money before you run out of month. For a time, you were able to put some of that unearned interest toward your balance. (Or necessities like food and heat.)
But now you’re paying interest on whatever balance is still on the card. Plus, if the balance totals more than 30% of your credit line, it could be damaging your credit score, said Bruce McClary, senior vice president for communications with the National Foundation for Credit Counseling.
At the same time, given what’s going on in the world, don’t beat yourself up over a credit card balance.
“Life happens, and sometimes people don’t have any other options,” said Eric Tyson, author of “Personal Finance for Dummies.” “You should do what you can reasonably do to get rid of it sooner rather than later,” Tyson said.
And if the interest-free period didn’t help you zero out that balance, it might be time to look at “bigger picture issues,” he said. Ask yourself if you need to cut some expenses or boost your income.
See related: What is a good credit utilization ratio?
How do you find out when your 0% APR ends?
When you received your card, the issuer should have included information that spelled out the length and terms of your intro-rate period. You can also take a shortcut and call your card issuer.
Many card issuers will give you a certain number of months interest-free – often from six to 20 months, depending on the card. Some, like U.S. Bank, actually count this period in billing cycles.
But you and the bank might define “month” or “billing cycle” differently. To make sure you’re all on the same calendar, ask for the exact date – and get it in writing.
If you’re looking to pay off a balance before the rate resets, build in extra time to allow for the some of the financial emergencies that life can regularly present, Tyson recommended.
Two cards that offer fairly long 0% rates:
U.S. Bank Visa® Platinum Card: The 0% rate lasts for 20 billing cycles and applies to new purchases as well as balance transfers you make within 60 days of opening the account. The balance transfer fee is 3% or $5, whichever is greater. The regular variable APR is 14.49% to 24.49%, depending on your credit. There’s no annual fee.
Citi Simplicity® Card: The 0% rate lasts for 18 months and is applied to new purchases and balance transfers you make within four months of opening the account. The balance transfer fee is 3% or $5, whichever is greater. The regular variable APR is 14.74% to 24.74%, depending on your credit. There’s no annual fee.
How do you find out what your APR will go to?
So what rate will you pay now that your introductory rate has expired? That depends on your card and your credit. The average interest rate on a credit card is just over 16%, according to CreditCards.com’s weekly rate report. And the average rate on a rewards card is around 15.82%, while the average cash-back card carries around a 15.94% APR.
The paperwork you received with the card would have included a “Schumer box” disclosure that spells out the card’s regular APR (or APR range), as well as the interest rate the issuer charges on balance transfers and cash advances.
Most credit card interest rates are variable, so APRs change as interest rates fluctuate, too.
Another thing that factors in is your behavior with credit in the months since you got the card. If you’re piling up balances and hitting the ATM for cash advances, that’s going to hurt you when the issuer adjusts your rate.
If you’re making payments on time, paying off balances and lowering the percentage of your credit lines that you’re using, that should help improve your credit score and your eventual APR.
And remember: Any credit card is a 0% card if you pay it off in full every month, Gianola said.
Ways to avoid paying interest after your 0% introductory APR period ends
Now is when you should take a hard look at your finances, steel your nerves and plan your next move.
If you’re tempted to roll any leftover balances into another card with a 0% offer it might not be that simple. Here are three reasons why:
- If you have to carry a balance or finances are tight, you might not qualify for a low- or no-interest offer.
- If you’re planning to roll a balance, you’ll likely have to pay a balance transfer fee, which start at 3%. That can get expensive, especially if you paid a fee on the same balance when you moved it to your current card.
- Card hopping can damage your credit. Both opening and closing accounts and carrying balances are notoriously bad for your score. So, saving a little money by chasing a lower APR could end up costing you big money through higher rates on homes, cars and other credit, said Bridges Dickey, CFP, financial advisor with Altfest Personal Wealth Management.
If you’re receiving – or are likely to receive – more 0% APR offers, consider using a competing offer to negotiate another low- or no-interest period with your current card, Tyson suggested. You’ll eliminate the balance transfer fee and avoid any potential credit score damage caused by opening and closing accounts, he added.
Another way to reduce the dollars you put toward interest is to “power pay” that remaining balance until it’s gone by making it a priority in your monthly budget, McClary said.
See related: How to create a budget that works for you
The bottom line
Zero-percent card deals are the financial equivalent of “kicking the can down the road,” Dickey said.
They can net you a little breathing room and allow you to use the money you would have burned on interest to attack a balance. But to really take advantage of one, you need a solid payoff strategy.
“Unless you have a plan in place to address that debt, it’s really not doing you much good,” Dickey pointed out. “You want to have a sturdy, steady plan.”