Zero-Interest Rate Credit Card Offers are Back – Beware

Winter may be on the way, but the credit markets are finally starting to thaw. Offers for 0% interest rates on purchases and balance transfers abound, and while this might be a sign that the economy is finding stability, consumers still need to be wary of these offers.

According to a recent American Bankers Association study, banks are offering more zero-rate credit card offers as  delinquent credit card payments (those that are more than 30 days overdue) hit an 11-year-low. Eager for new customers and encouraged by the rock-bottom delinquency rates, banks are dangling more of those zero-percent off ers than in recent years.

These deals come with a range of different options depending on the issuer. The zero-percent APR could last anywhere from six to 18 months, and might apply to purchases, balance transfers, or both. But like any financial product, there are pros and cons to these credit cards.

Pros

• Paying no interest can provide a little breathing room while you rethink your budget.
• If you are unemployed, one of these cards will give you a quick credit line.
• If you are starting a new business, this might help you get past that first year of red ink.
• If you are already in debt, you can get a jump on paying back debt faster.

Cons

• Too many credit card applications can ding your credit score so don’t go crazy accepting offers
• Transferring a balance can create the illusion that debt problems are solved—they’re not.
• These cards are not a pass to overspend, it can be tempting to live beyond your means.
• If you are late with payments, your zero-percent rate will disappear.

Buyer Beware

Make sure to review the terms and conditions carefully before signing up for any credit card offer. Some of these cards come with catches, so Caveat emptor .

Do the math and see how much you’ll save using CreditLand.com’s balance transfer calculator, particularly if you’re transferring a balance and paying a fee.  For example, a 3% balance transfer fee can be a deal breaker or no big deal, depending on the amount you want to transfer and the length of the intro offer. A balance of $5,000 will cost $150 to transfer, but if it’s transferred from a 15% APR credit card to a card with no interest for 18 months, the entire balance can be gone in 15 months with monthly payments of $300. The cardholder would pay off the balance faster and save $637, compared with making the same monthly payment on the old card.

Think of a zero-interest offer as a stay of execution, not a get-out-of-debt- free card. Used the right way, they can be a valuable financial tool. Digging out of debt requires discipline and hard work. Don’t be lured down the path of overspending and lulled into complacency by the zero percent offers that are springing up all over. But do make hay while the sun shines.