They’re tough to get and high in demand, but obtaining the tricky, but useful zero-interest credit card is doable — if you know what landmines to navigate.
Why a zero-interest credit card? It’s no mystery — total U.S. consumer credit card debt reached $973 billion at the end of 2008, according to the Nilson Report, a card industry analytical firm. Average credit card debt per household was $8,329 at the end of 2008, Nilson adds.
If you’re already carrying a credit card balance, chances are that debt burden is rising. According to the Federal Reserve Survey of Consumer Finances (February 2009), debt levels for card carriers carrying a balance rose 30% in 2007 — the median average for the three previous years was only 9%.
If those numbers raise your blood pressure, a zero-interest credit card works better than any prescription drug to calm you down. A zero-interest card is exactly what it says it is — a credit card that charges you no interest as long as you meet some predetermined condition.
You’ll need good credit to get one, and you’ll need to watch out for some of those ubiquitous trap doors that the credit card industry sets: but if you do, your blood pressure should stay down too.
The key? Just follow these steps:
Read the fine print. Most zero-interest credit cards have an expiration date, after which your rate can rise significantly (sometimes up to 30% interest) if you’re not paying attention (and especially if you’re not paying your bill on time). For example, your 0% interest may only be good for the first six months after you activate the card. Knowing when the no-interest offer is yanked off the table is “job one” for credit card customers.
Pay on time. Another “fine print” issue is the card’s payment schedule. Hidden triggers in many zero-interest credit cards will spring if you don’t pay your bill on time. Right now, even a missed payment on a separate credit card can mean the end of your zero-interest deal on your new card.
Get a transfer. Most major credit card carriers, including Chase (Stock Quote: JPM), Bank of America (Stock Quote: BAC) and American Express (Stock Quote: AXP) offer transfer deals where you can move the debt from your current credit card to a new, zero-interest card. Again, these cards usually come loaded with introductory periods where, once that period has come and gone, higher interest rates automatically kick in that cover the total amount of the debt on the card. So make sure you can pay off your old card’s debt within the introductory period (usually six months to a year).
Go for the purchase option. Don’t waste your time with a zero-interest credit card that doesn’t offer a new purchase option. Essentially, that gives you the right to buy items at a 0% interest rate (so you’re essentially getting an interest-free loan).
Zeroing in on a no-interest card is well worth your time. But to make it really work, you need to be diligent about paying your bills, and you need to make the angles work for you — and that’s usually the last thing the credit card companies want.
—For a comprehensive credit report, visit the manybanking.com Credit Center.