Chip away debt with interest free credit cards
78You’ve trimmed the fat from your budget and prioritized your payments... now it’s time to take advantage of a great financial tool: interest free credit cards.
Skip down to the Credit Card Quiz and test your savvy!
By transferring the balance from a high-interest card to an account with zero interest, you are doing more than saving money. Since every penny of that payment is going toward the principle, you’ll be cruising toward debt-freedom in the fast lane.
Why companies offer interest free credit cards
If we’re not paying interest, they’re not making money. Right? So why would a company issue such a card?
Think of it like a test drive. Zero interest is a promotional tool; after a set period, the balance on the card will begin to earn interest. Some cards offer a short introductory period of six months, but others stretch out for an entire year or more.
Take advantage… but be careful
- Too much card-hopping can undermine your good standing
- Penalties for late payments can be brutal - so be on time
- Mark the end of the introductory period on the calendar - in big red letters!
- Avoid cards with annual fees
- Be aware of any balance transfer fees before you transfer money
Two types of interest
When you compare cards, you’ll quickly notice that they have two different introductory APR categories. Both categories convert to a single APR after the promotional periods are up, but each has a different length of time.
The first interest rate category is for new purchases. Typically, the window of zero interest for new purchases is smaller - from 6 to 12 months.
The second introductory APR is the important one. It applies to balance transfers. Offers for various cards range from 12 months to two full interest free years - that’s a nice chunk of time to chip away at your balance before the standard rate applies.
Once that 0% APR expires, your balance will begin to earn interest. There are two ways to avoid this: get the balance paid off before the promotional period ends, or transfer the balance to another interest free card.
Of course, when the card has a zero balance, it's very easy to continue charging interest-free: simply pay any new balance in full each month to avoid the charge.
How to get an interest free credit card
Whether you search out a card on-line or get an offer in the mail, you will need to fill out an application. If your credit took a hit during the recession, you may not qualify for a zero interest credit card.
Take the time to shop around for offers; you may find that one card has a shorter introductory rate period, but has a rewards program that will be a big benefit for you.
If you do qualify, your credit history will determine how much credit you will get, and may affect what your APR will be when the promotional period expires.
Don't miss out on those credit card perks
You don’t need to be a frequent flyer to reap some sweet rewards.
Discover® and Chase® both offer cards that earn 1% cash back on all purchases. They also offer promotions that earn 5% cash back on the things we all buy the most: gas, groceries, home improvement... The rewards can be redeemed for cash, or used as payment toward your balance.
Points programs are also common with many credit cards. Your purchases earn points that can be redeemed for merchandise, gift cards, or cash.
Are you credit card savvy?
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© 2011 wyanjen at HubPages
Chip away debt with interest free credit cards
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Thanks rm :)
Im a couple years away from recovery myself... I wish that red number was getting smaller a little faster than it is ;)
Hi Jen,
Great article, especially since I need to start working on my credit card debt. I am wondering though, have you tried to strike a deal with your current credit card provider at any time?
I called mine last week who tried to offer me 0% on new purchases for sic months, but that isn't any good to me if what I am trying to do is clear my current balance a.s.a.p.
Just wondering if you would happen to have any advice on the matter.
Hi there keno
Yep, it sounds about right... they are perfectly willing to hook you with more purchases that will run up that balance. In years past I've heard more stories of companies really helping out, but since the economy got bad it seems to be more and more rare.
Hopefully your credit score is healthy enough that you could scare yourself up an interest free card. Remember that the introductory 0% rate generally applies for a longer period for transfers than it does for new purchases. It could be a great tool for you, exactly what you need.
Just be cautious about the term ending date. They'll hit you with hammers once the introductory period ends so hack away at that balance as fast as you can. If you can't get it to zero, try to transfer it off the card and onto a new 0% card.
Good luck to you
;)
Although I've been debt-free since birth, I've been having fun with these 0% cards for a while. What I do is accept the card, let normal spending accumulate a balance, and as soon as the 0% runs out, I pay it off. These days I take it one step further by opening a savings/CD with the card issuer, and collect interest from them with what is, really, their own money. It takes some work, tracking the dates of when the 0% runs out and when the CD matures, but it's great fun for me. Just another GenXer stickin' it to the MAN.
Aha! I applaud your GenX ingenuity. Very nicely done.
;)
I went into the red for the first time in my life when my employer hit trouble and cut my salary. Thankfully, because I was debt-free till that point, I weathered the storm with a high credit score. Now I'm slowly but surely rebuilding.
JEN
You make me feel like a looser. I got bombed when the bubble broke. I am a freelance artist. I should be rich by now. Help!
rmcrayne Level 4 Commenter 16 months ago
Well done Jen. I hate this month's contest topic though- I made some choices to take that year off when I retired (which turned into a year and a half). It will take a couple years to get my finances back on track.