Interest Free Credit Cards - Important Factors To
Consider
Managing your credit is hard enough without all the confusing
interest rates. Between introductory rates and changing rate terms
for cash advances versus purchases, you can sometimes find yourself
in a credit quagmire. You can avoid some of the confusion and a
whole lot of the cost if you start employing
interest free credit cards.
What are interest free credit cards?
Interest free credit cards are exactly what they sound like:
they are basically credit cards that don’t charge any interest.
While this approach seems “to good to be true,” these types of
instruments can be useful for the savvy money manager.
What kinds of interest free credit cards are
offered?
As a recent article from
MarketWatch.com notes, there are generally three different types
of interest free credit cards:
- 0% on all purchases for a specified period of
time.
- 0% on all transfers during a specified period of
time.
- 0% on all transfers and purchases during a
specified period of time. Quoted from MarketWatch.com
You’ll notice that the common denominating factor here is “for a
specified period of time.” It is important to understand that
interest free credit cards do not stay interest free forever. In
fact, this is the main reason why people run in to trouble with
these cards. Once the grace period has passed, interest rates can
rise dramatically,
What is the best way to utilize interest free
credit cards?
In a word, carefully. These types of cards can be very useful if
you need to “float” some expenses for a short time. For example,
some people find that around the holidays it can be useful to have
an extra month or two to pay off gift expenses. In general,
interest free credit cards are not useful for long term balances
because the interest rates tend to rise to unfavorably high levels
after the initial grace period.
What Should I Avoid?
For any interest free credit card offer you will want to
carefully review the fine print. Some of the things to look out for
include:
- Fees or transfer charges: Sometimes, a bank may
offer a no interest card but will charge a hefty fee for you to
transfer balances from other high interest cards. Do the math to
figure out if you’ll actually wind up paying more in fees than in
interest.
- Late payment fees and penalties: Many cards offer
“interest free credit” until you miss a payment: then the issuer
loads back all the back interest as well as late payment fees.
Be sure you understand what the payment penalties are for any
offer you’re considering.
Can I Make Money Using Interest Free Credit
Cards?
Actually, this is one of the most creative ways to get the things
you want, manage your cash flow and make a little extra on the
side. Imagine walking in to an electronics store and buying a
computer for $2,500. The store offers a “1 year no interest, no
fees” credit card. If you have the discipline to put the $2,500 you
would have used on the computer into a savings account, go ahead and
take the interest free deal. At the end of the year, if you leave
your $2,500 in the account, you can take it out, pay off your
balance and have an extra $125 to play with!
In short, if used carefully, interest free credit cards can be a
useful cash flow management tool – but always read the fine print!
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