Using 0% Credit Cards to your Advantage

If you have decent credit, you have probably received offers for credit cards with 0% APR on purchases, balance transfers, or both. Sometimes the 0% APR applies for 12 or even 15 months after you open the credit card account. You can use these cards to your advantage financially, if you are disciplined. In many cases, these cards also come with rewards or cash back programs. Cards offering 0% balance transfers do charge a balance transfer fee of around 3% of the balance being transferred, but if the balance comes from a card with a high interest rate, you'll still come out ahead by transferring your balance. Here are a few ways to use a 0% card to benefit you most.

Using 0% Cards for Big Purchases

If you need a new refrigerator, washer, dryer, computer, or some other big ticket item, charging it to a 0% purchase credit card gives you a period in which you can pay for that item without incurring interest charges. This is far less expensive than even the lowest-interest personal loan. These savings only come about, however, if you resist loading up the card with purchases you can't pay off before the 0% period ends. If you plan to purchase a big ticket item, consider using the card only to purchase that item and pay it back before the 0% period ends.

Using 0% Cards for Small Purchases

Some people use 0% cards to their advantage by using them for everyday expenses, such as:

• Groceries
• Gas
• Subscriptions
• Charitable donations
• Bills

They are able to pay all these charges off before the 0% period ends, and reap the advantages of reward or cash back features of their card. Normally, using a credit card for necessities is not recommended, but this is one case where it is advantageous to do so, as long as all balances are paid on time.

Zero Percent Doesn't Equal Zero Payments

Zero-percent APRs don't mean that you don't have to make payments each month. In fact, if you don't make payments on time, you could face losing your 0% APR and paying a high interest rate on your purchases. When buying one big ticket item, divide the total cost by the number of payment cycles you have before the 0% period ends and pay that much each month. If you use your 0% card for small purchases, pay off the entire balance each month, or the maximum amount you're able to.

Watch your 0% Deadline Closely

It cannot be stressed enough that you must pay off your balance before your card's 0% purchase or balance transfer period ends. The 0% period begins the day the account is opened, not the day you transfer a balance or make your first purchase. If you're even one day late paying it off, you'll incur big interest charges (and possibly a late fee). Using a card with 0% purchases and / or balance transfers requires discipline. If you pay your entire balance before the 0% period ends, you'll have basically borrowed money for free, something you can't normally do any other way.

Sources:

http://www.thebacktobalancecenter.com/0-apr-credit-cards-use-them-to-your-advantage.html
http://www.businessmeetings.us/index9a88.html?p=227
http://everythingfinanceblog.com/2011/05/tips-for-using-credit-cards-to-your-advantage.html