Zero Percent Cards
Posted October 29th, 2009 and last modified February 3rd, 2012A zero percent card is a credit card that offers an interest rate of 0%. If that were the end of it, it would be a no-brainer; you’d apply for one straight away. However, there is more to it than that. That zero percent figure does not last indefinitely.
It is a time-limited offer that will sometimes apply to purchases, will usually just apply to balance transfers, but sometimes will apply to both. The usual period for these offers in Australia is six months, which is less than in the rest of the world. For example, the Virgin credit card in the UK has a 0% balance transfer deal for sixteen months.
Top 5 0% Balance Transfer Credit Cards
When a zero percent card works for you:
Zero percent cards work for you if you have a balance transfer to make from another credit card and you believe it is possible to repay the full amount within the offer period. That means you will have reduced your interest from maybe 15% to 0%. There’s not much to argue about there. You save money, pure and simple.
If the 0% card is for purchases, it is again a great deal that allows you to make several purchases or one large purchase and pay no interest for six months.
These are the main benefits and this is exactly how the credit card provider will sell the card to you. A zero percent card can really be as good as the headline.
Top 5 0% Purchase Rate Credit Cards
When a zero percent card works against you:
Before you make an application for a zero percent card, you need to take some time to look behind the headline and understand all that the card entails.
If the card is for a balance transfer, you need to know that you will have paid off the debt before the offer period ends. If not, your rate will revert to the standard one and that may be as high as 20%. Making another transfer may be possible, but it will negatively impact on your credit rating. Or it may not be possible because your rating is too low already. Then you are stuck with a debt at a high rate of interest.
The same applies to purchases made at 0%. If you don’t pay them off before the offer expires, the standard rate kicks in.
But the real problem can be when the zero percent card offer is for both balance transfers and purchases, or when the deal is only for a 0% balance transfer but you then make some purchases at the regular rate of interest. Here, the issue to understand is known as the “adverse order of payments”. This means that you will nearly always pay off your cheapest debt first. Your Terms & Conditions should explain how your provider deals with this, but it would be unusual for it to be the other way round. Thus, if you make a string of purchases at 15%, these will not be touched by your repayments until your balance transfer at 0% has been paid off in full. For this reason, you need to watch out for a shorter 0% period for purchases than for balance transfers.
A good rule of thumb is to keep your zero percent card for only one purpose.
Other points to watch out for with a zero percent card:
- Check if the annual fee is higher than average
- Make any balance transfer as soon as possible to get the whole offer period at 0%. The clock starts ticking when you receive the card
- Verify if your 0% offer is lost if you fail to make a minimum payment in time
Be aware of the pitfalls and you will be able to use your zero percent interest credit card to your full advantage.
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[...] time to pay off your balance transfer. There are many offers available for balance transfers at a zero percent interest rate but, that rate is usually only available for six months. Some credit card debts are too large to be [...]