When people discuss ways of saving money on credit card debts they will more often than not be told about the benefits of 0% credit cards, and balance transfers. Although most of the time they are a very good idea, and a very effective way of saving money on your debts there is also the odd downside.
Let’s have a look at the pros and cons of zero interest credit cards.
The Pros
If you are carrying an outstanding credit card debt then you will be paying interest on the balance each month. This interest is increasing your debt, and increasing the length of time it is taking you to repay the debt. When you take out a 0% balance transfer credit card any existing debt is transferred to your new card provider, so now you owe them the money instead of your old lender. The difference is with a 0% interest rate on the debt you will be saving vast amounts of money, and will have more time to pay the balance off without the worry of interest charges.
0% interest credit cards will also sometimes come with the advantage of a 0% period of interest on purchases. This means if you do need to spend any money on the card in an emergency you will not have to pay any interest.
Some card providers who offer these 0% deals will often tie this deal in with a no annual fee deal meaning you can use the card for a year without having to pay the usual annual fee. Depending on the card and card provider this in itself can save you anywhere between $50 and $100 per year. So far the positives are looking good in the pros and cons of zero interest credit cards. What about the cons?
The Cons
One of the potential traps of a 0% credit card is the temptation to spend. The idea of these cards is to save as much money as possible. Many consumers are drawn in by the interest free periods on purchases and go overspending. This leads to higher balance and bigger debts. To use these cards successfully you must be prepared to demonstrate some discipline and refrain from adding to your debt.
The other trap people fall in to is not being prepared for the end of the 0% period. Any unpaid balance at the end of your promotional period will be liable for interest charges. Therefore if you know the debt will remain unpaid then you need to make provisions to either move the debt elsewhere, or reduce the interest rate you will have to pay.
If you are unaware when your 0% period ends you could very easily forget and end up paying interest you didn’t need to if you had been more organised.
The last thing to look out for is high annual fees. There are many great deals available, and many cards annual fees are very reasonable, however keep your eye out for the odd credit card that may charge a very high yearly fee. Saving money with 0% credit cards can be very easy, as long as you are sure to weigh up the pros and cons of zero interest credit cards.
