Introductory Credit Card Offers for a Limited Time

Introductory rates usually minimise significantly or completely waive those interest charges. This gives you a chance to borrow money for free or even pay off another credit card for free with a balance transfer. The rate is either low or zero percent and the time period of the honeymoon rates ranges from three months to one year.

• Know your needs. Will you need your card for a balance transfer, for purchases, or both? Not all cards carry the same rate on different types of expenses, some only offer it on purchases or balance transfers. Others might offer zero percent on both but not for the same period of time. Choose the card that gives you the best rate for the longest period of time for your personal financial situation.
• Understand allocation of payments. This is a perfectly legal but tricky thing that credit card companies use to make money. Your payments will always go to the debt that carries the lowest interest rate first. This means that if you have a balance transfer rate of zero percent and a purchase rate of 18% all of your payments will go towards paying down the balance transfer until it is completely paid off. Even if you only make a ten dollar purchase and then add an extra ten dollars to your monthly payment, it will not make a difference. That ten dollar purchase will sit, collecting interest at 18% until the balance transfer is paid. Tricky yes, but avoidable. Just decide what you will use a particular card for and then use it for nothing else until that previous balance is paid. This gives you the full benefit of your honeymoon rate.
• Find out what other fees you will be charged. Not many cards are completely free. There is usually a fee for the balance transfer that is somewhere around three percent of the amount transferred. There might also be account maintenance fees applied to your account. Usually these fees are far less then you would spend on interest, but you should sit down and do the math to be certain that you are saving money by getting a introductory rate card.
• Know exactly when the introductory rate expires. If you are using a zero percent interest rate for a balance transfer, aim to have that debt paid off before the introductory rate runs out. Similarly if you have racked up purchase debt you should try to have it paid down as much as possible before the honeymoon expiration. Your rates will jump immediately on the expiration date and the new interest will be applied to any remaining balance.
• Beware of cash advances. Almost always introductory rates do not apply to cash advances. These often include gambling purchases and any ATM transactions. The rates for anything deemed a cash advance is usually more then 20%. Again, your payments will be applied to your introductory rate charges first so those cash advances wind up being very expensive.

• Someone who needs to do a balance transfer. A balance transfer is when you move the balance from one credit card to another credit card. Most people do this so they can save money on interest. Introductory rate credit cards usually offer very low or no interest on balance transfers. This gives one the opportunity to repay their debt at a low cost. These cards are not a good choice if you need a long period of time to pay off your balance transfer. You should look into a life of balance transfer card which will give you a long time period to pay off your debt.
• Someone who will be making a large purchase or purchases that they will need some time to pay off. These people can use a no interest introductory rate instead of a traditional interest bearing loan to make these purchases. Some expenses may include emergency medical expenses, auto repair expenses, or even home remodeling expenses. You can spend on your card and have the introductory period, which is anywhere from three months a a full year to repay those expenses interest free.
• If you need to do both of the above mentioned transactions there are some cards that offer introductory rates on both balance transfers and purchases. You should try to get a card that offers the same rate for the same length of time in order to avoid falling into the negative payment hierarchy or allotment of payments trap.

What is negative payment hierarchy?

• Also referred to as an allotment of payments clause, this is when credit card companies apply your payments to the cheapest debt first. All credit card companies do this and it is a perfectly legal but somewhat sneaky way they turn a profit. For a borrower though, it means they could be stuck paying higher interest on a small debt for a long period of time, waiting for their lower interest debt to be paid off. For example, let’s say you get a new card and you have a zero percent balance transfer rate. You then transfer $1500 to your new card with the intention of paying down that debt interest free. You then make a purchase for $50 at an 18% purchase interest rate. That $50 purchase will not be paid until the original $1500 balance transfer is paid in full. Even if you pay $50 extra that same month toward your bill, all of your payment will go to the balance transfer only. If it takes you six months to pay off your balance transfer you will pay 18% interest each month on your purchase balance. Credit card interest is compounded so the first month you will pay on $50, but the second you will pay on the original $50 plus $9 in interest charges from the previous month. It will continue to add on each month with you paying interest on the increasingly higher balance. Even if you make a purchase first and then do the balance transfer your lower interest rate debt will be paid first. Payments are not applied in order of transfer instead they are applied in order of interest rate with the lowest always being paid off first.
• Introductory rate credit cards that offer a low rate on both balance transfers and purchases can save you from this trap, but only if they are for the same length of time. If the balance transfer rate is for one year but the purchase rate is only for six months your payments will be applied to the balance transfer until it is paid off, even within that six month grace period the only difference is the interest will not compound.

Tips for finding the best introductory rate credit cards:

• Avoid cash advances or cash transactions. There are a few transactions that are deemed cash advances by credit card companies they include, getting cash at an ATM, buying foreign traveller’s cheques or currency, even making a gambling transaction. These activities garner a significantly higher interest rate then purchases or balance transfers. Also, they will not be paid off until after your introductory rate debts are paid in full which means they could sit and gather loads of interest costing you far more then you anticipated.
• Those who know how to use introductory rate credit cards also know to take full advantage of the reduced rate period. If the rate applies to purchases use the full time period to make purchases without paying interest. You may be tempted to use another credit card or in store credit offers but, those do not save you actual cash. Nothing is more valuable then cash savings is it?
• If you plan to do a balance transfer make your application for it as soon as possible. Usually you can include the balance transfer in your application for the actual card. This will give you the most amount of time possible to pay down that credit card debt, again at zero interest.
• Set up a budget to pay off any debts within the interest free period. The money you save will quickly be lost if you let your debt sit and begin to gain interest for a long period of time. You may have to make double payments to do it, but by paying off your debt within the introductory period you maximise the money you save. It is important that you know the date when your introductory rate will expire so that you can meet this deadline.
• Pay attention to the terms of the offer and abide by them. In most cases, an introductory rate is dependent upon the owner of the card abiding by the fine print on his contract. This usually means you can not go over your credit limit, you can not miss payments, and you can not make late payments. If you do any of these things your credit company is likely to remove the introductory rate and slap you with fees and and regular interest rates on your remaining balance.
• Cards that offer the same introductory rate on both purchases and balance transfers for the same length of time are best, but not always easy to find. Pay close attention to the two different rates and lengths of the contract. You could wind up paying more in interest then you intended due to an allotment of payments clause. This gives credit companies the ability to apply your payments to the cheapest debt first, paying it in full before it is applied to a higher interest debt. So, if you have a balance transfer at zero percent it will have to be paid in full before your interest bearing purchase balance even begins to be repaid.