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No Interest Credit Card: When to Do it, When to Run

Zero percent key on a keyboard depicting a no interest credit card offer.

A zero-interest credit card may sound too good to be true. Many might even be tempted to see the offer as “free money.” After all, aren’t high rates the biggest reason to avoid credit cards? Taking a no interest credit card offer is a no-brainer, right?

The answer is, not necessarily. This decision depends on your history, financial situation, and current spending habits—not to mention the surprises that may arise if you jump into a zero-interest loan without reading and understanding every line of the fine print.

It’s in the Cards

Before deciding whether you should get a no interest credit card, look at these common types of zero interest agreements:

  • In many zero interest agreements— there’s a line that states the no interest period will expire at some point. Occasionally, balance transfers are interest-free for the duration of their life, but new agreements don’t offer that same perk for long.
  • The industry calls a low rate, or even a zero interest rate a “teaser” rate. The lender’s goal is not to extend a free product as much as it is to hook new customers.
  • Many no interest agreements include annual fees, maintenance charges, and other costs that cancel the savings you’ll achieve by clenching that zero percent rate.

Show Me the Money

So should you go for it? When deciding whether or not to enter a credit card agreement, no matter the rate, there are a few things you should ask yourself first:

  • What are the fees and charges (other than interest) associated with this account. Do the charges negate the openhandedness of “interest-free?”
  • Do I have other lines of credit open? If so, what kind of credit? Am I holding a balance on any of them? If so, why?
  • Can I comfortably make the monthly payments on this card?
  • What will happen if I miss a payment? Am I ready to live with that?

Now that we’ve looked at what a no interest loan might really look like, let’s to discuss different financial scenarios that you may be in right now – and whether any of them would benefit from an interest-free line of credit.

Scenario #1:

You need to make a purchase, but don’t have the funds available. If it’s a true “need”, then your emergency fund should cover the amount. If it doesn’t, then you should be working to build that up instead of buying things on credit. If this is you, call a non-profit credit counselor to discuss why a new line of credit – no matter the APR – is not the most beneficial route for you.

Scenario #2:

You’re a financial guru with a well-stocked reserve fund for emergencies, and you only use credit cards for their rewards, points, or to build your credit score. You pay your entire balance each month and pride yourself on being “ready for anything.” You have the amount of the purchase safely sitting in a savings account, ready to auto-debit monthly so you never miss a payment. If this is you, then instead of increasing your debt equity ratio without much return, why not invest it where it will grow?

Sometimes, when a great offer comes up, it’s hard to decline. That’s why in the case of interest-free lines of credit, it might take more effort to walk away. In that case, we say, “run.” If you don’t feel you can trust yourself to use credit wisely, then the best move is to put the pen down, take a deep breath, and remember your goals and source of inspiration. Need help staying on track or tackeling debt? Let CESI help!

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