Pitfalls and Perks of the Zero-Interest Credit Card Offers

Zero percent interest credit card offers are constantly being dropped in our mail boxes and email accounts.  But they are not always the best way to assist you with your finances.  People may think that using a zero-interest credit card to transfer other credit card balances onto, they are saving money.  This may or may not be the case.  But first, let’s look at some of the perks.

The Perks. You can buy what you want now instead of waiting.

My husband and I were looking at appliances to replace our dryer.  In the next isle, I could hear a couple discussing a very pricey $3200 refrigerator.  There was a zero percent credit card offer that was available for one year displayed on the refrigerator.  The man, we’ll call him “John”, was all for buying the refrigerator now, with the zero-percent offer.  The savvy wife, after reading the fine print, said that it sounded like a great offer.  But if we don’t pay the full amount off within one year, the interest rate changes to 30%!  In order to pay the entire balance off in one year with taxes included, payments would be over $280 per month!  John’s jaw dropped.

Using the credit card offer to your advantage

Ultimately, they decided on a less expensive refrigerator.  They took the credit card offer as well, but calculated the payments on this less expensive model so it would be paid off in 11 months.   Now this is using a credit card to your advantage.  If you’re disciplined to actually pay it off before the deadline, using one of these offers is a great tool to get what you want or need now instead of waiting.

What are credit card companies really hoping for?

Credit card companies know that most people don’t read the fine print and don’t do the math.  They don’t pay it off within the zero percent interest period.  Instead, most people make the minimum payments and then end up getting socked with the high interest rate that follows, usually between 25% – 36%.

The Pitfalls.

In the scenario above, if John and his wife had gone ahead and purchased that expensive refrigerator and only made minimum payments of $121.00, they would pay almost $8,000 for the appliance that was supposed to only cost $3200 and they would be paying on it for 21 years.  That is an insane amount of time and money!

If you are using a zero percent credit card to consolidate debt, there is usually a balance transfer fee of 2%-4%.  Use an online credit card calculator to add up what you are really spending, up front, to consolidate the debt.

HELOC or Unsecured Personal Loans can assist you with consolidation of debt.

Check into getting a home equity line of credit loan or line of credit (HELOC) if your credit is decent and you own a home.  Beware however you are using your home as collateral.  If you don’t keep up your payments, you are putting your home at risk.  An unsecured personal loan might also be an option for you.  Check with a credit union first because they often have lower interest rates and fees since they are not for profit organizations.  They can also assist you in finding the best way to increase your credit score so you can qualify and/or get the best rate possible.

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