The Danger of a 0% Introductory Rate Credit Card

A 0% interest credit card can be a valuable money-saver if you play your cards right. The key is not to fall into the trap that credit card issuers have set for you.

Used wisely, a generous introductory period can buy you time to pay off debts, keep your money working for you longer, or allow you to finance a major purchase interest-free. But used carelessly, a new credit card with a super-low teaser rate can become another burden to your financial situation.

The mistake commonly made with any credit card is over-spending; it's even easier to justify when the interest charges are delayed for a year. Enthusiastic about getting a free ride on a credit card, the credit card user may be tempted to splurge a little more than usual.

Paying the balance, in full, every month is normally the only way to get around paying interest fees to your credit card company unless you have a card with an introductory period.

Why should someone pay off the balance every month when they have a zero-interest credit card for a year? It makes more sense to make only the minimum payment during that time, to keep more of your money working for you. Doesn't it?

Well, many credit card users attempt to do just that. They pay only the minimum payment during the promotional period, but they end up increasing their spending due to the additional cash that's now freed up. They figure that since they have a year to pay the balance before the actual APR takes effect that they have plenty of time to save the pay-off amount.

The problem is, that the average American credit card user puts off saving for the end of the introductory period just like we put off saving for retirement and our kid's college funds. The promotional 0% rate eventually becomes replaced by a 17% APR, and hardly a dent has been made in the balance.

The plan of most who use the credit card for the introductory rate is to pay off the balance before the 0% rates come to a halt. They may have transferred balances with the intent to save interest fees.

The reality is that many well-intentioned consumers bite off a little more than they could chew, and the remaining balance isn't much lower than they started with, or worse, it's even higher.

Those that previously never carried a balance past the grace period may be tempted to let charges accumulate to take advantage of the zero-interest loan.

Even someone who normally paid all their credit card balances every month before the intro card may have a hard time getting used to making full payments again when the introductory period ends. Well, the fact is, that a person's spending habits and bill-paying habits can change dramatically in a year's time due to the "generous" free loan.

When a credit card user pays those minimum payments all year, and their spending increases due to the "extra" cash, they may have taken a road that's hard to turn back from. The extra spending that a zero-interest credit card allows may pave the way to living beyond one's means.

It's just hard to go back to an affordable life once someone has become accustomed to "living the good life." If you're used to eating hot dogs, it won't bother you to eat hot dogs. But once you've gotten used to eating steak and lobster, you won't want to go back to eating hot dogs everyday.


Keep these tips in mind if you want to fully benefit from a credit card's introductory offer:

• Know what you're going to use the credit card for, before you apply.
• Make sure that the introductory rates apply to the purpose you intend for it.
• Don't spend more than you normally do just because you're given some interest-free time to accumulate debt.
• Stay current on your payments; one late payment is all it takes for the default rates to come into effect and wipe out all the interest savings.
• Remember that all credit card debt, even interest-free, is still a debt.