The 0% introductory offer on balance transfers and purchases is a very common tactic used by credit card issuers to lure new cardholders. Credit card issuers hope that by offering a 0% interest rate, the new cardholders will stick to using the card after the introductory period expires. But rather than looking at this as a marketing ploy, there are ways to make this work to your advantage. We will explore these ways to make use of 0% deals to your advantage.

Transfer High Interest Balances: The most obvious way to take advantage of a 0% interest rate is of course to transfer balances from higher interest rate credit cards. This can save quite a bit in interest payments. This technique will work well for those in credit card debt and are looking for a way to pay it off faster. By combining Dave Ramsey’s snowball method together with temporarily paying 0% interest rates, you can get of out your credit card debt much faster.

0% Interest on Purchases: I am generally against making use of 0% deals for purchases. That is because I always advocate paying your credit card bills in full every month. But sometimes, carry a balance may make sense. For example, if you are starting a new business, you could taking advantage of such deals on a business credit card and get a new computer. You may want to carry a balance simply to build a business credit history (and we assume you have the money to pay it off in full if you choose to).

Earn Rebates and Rewards: As silly as it may seem, some cards reward you for actually doing a balance transfer even though they do not offer any 0% interest rate. For example, if you transfer a balance to the US Airways MasterCard, you will get 10,000 bonus miles! So even if you normally pay your bills in full, transferring a balance to get the bonus miles may actually make sense to folks who play the frequent flier game.

Rules and Guidelines

However, to play this game, you need to follow a few rules and be aware of a few things.

Figure Out What the Rate Will Be: If possible, calculate what your interest rate will be after the introductory period so you can plan accordingly. Either make sure your balance is paid in full by then or decide if it will be cheaper to not take advantage of the 0% interest rate and stay with the current card.

Pay More than the Minimum: This is something that would be beneficial to all credit card users, but especially so if you are using a credit card with a no interest offer. In the end if you still have a balance, at least it will be smaller and not accrue as much interest as if you just paid the minimum payment during the intro offer. The typical minimal payment is between 2% and 4%.

Be Aware of the Rules: Make sure you understand where the 0% interest applies, if it is just on balance transfers or only on certain purchases. Also make sure you are aware of the time period and the exact date the intro offer will be over. If you need to, put the date on a calendar so you won’t be surprised when you have to start paying interest on your credit card.

Pay on Time: Always pay your bills on time (especially when you are on one of these 0% deals. Pay late and you could see your rates go from 0% to perhaps even default rate levels! Sign up for autopay and make sure you have sufficient funds in your bank account.

0% APR Donts

These are things that will sabotage your efforts in taking advantage of a 0% interest rate:

Waiting to Pay Balances: Don’t let the 0% interest rate run out on balance transfers. You could end up paying a higher interest rate after the introductory rate than you were on the card you transferred from. Try to pay off the balance transfer before intro period ends.

Getting into Debt: Don’t use a 0% offer as an opportunity to put yourself further into debt. Make your purchases while the rate is 0% and pay off balances when the introductory period ends.

Summary: – 0% deals offered by credit card issuers can be a great tool in the right hands. You could use it to pay off your credit card debt faster, or manage your cash flows when you get 0% for purchases. Savvy frequent fliers can even earn bonus miles for just temporarily transferring a balance. But the most important thing is to use it wisely and not fall into the trap of getting into debt.

How to Make the Most of 0% APR Offers is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

The answer is not a straight yes or no answer. In fact, it isn’t really even a straight “maybe” answer. Much like most financial products, it is very dependent on your personal situation. Make no bones about it, I dislike credit cards. If I can, I will be credit card free some day and use only my debit cards. However, until that day happens, I’m stuck with them. I don’t use them, but merely pay them off. Until they are paid off, I’ve still got a few.

While I have no intention of ever trying the arbitrage that some people try, I have and will use the 0% offers to help with my debt repayment. It’s a free loan. Sure, the rate is temporary, and the rate on expiration is likely just as bad as the card I transferred from. But, for that introductory period, I pay no interest, and every penny that I send as a payment goes towards paying off that balance. Essentially, I’m making 8%, 9%, and in some cases 20+% on my money. The offers can be a great tool while you are repaying your debt.

Once you are done repaying your debt, however, credit cards have little to no use to you. The concept is that a credit card is a way for you to have a open line of credit whereby you can access your “credit” anytime you want from virtually anywhere. However, if you are a financially responsible person and maintain a debt free lifestyle, you’ll likely want to pay cash for nearly everything. Obviously, a debit card or good ol’ cold hard cash is your tool of choice.

One exception that could be argued for is reward cards. These are cards that give you rewards based on the amount of money you spend using your card. If you are responsible and pay off your balance within your grace period, you can make a pretty good arguement for the use of a reward card for the sake of the rewards. And some of the rewards can be quite tempting. Airline miles, gas discounts, gift cards, and even cars are among the lists of rewards.

Some folks (like Ramit of I will teach you to be Rich) think that the reward cards are a horrible thing. The possibility of missing a payment or letting your spending get out of control is always there and one slip up can cost you well more than any reward you might get. And unnecessary risk is something you don’t want in your financial life.

Back to the 0% cards though. The bottom line is that if you are already using some self control and not using your cards, transferring the balance to a 0% offer can save you quite a bit of money over those few months that the rate is that low. If you can’t manage the cards you have, though, forget it. The risk of causing more harm to yourself is too great to add more accounts to your portfolio. Also, don’t let a great introductory/transfer rate buffalo you into signing up for what would otherwise be a horrible card. Do your due diligence and read the fine print for annual fees, grace period, other fees, and most importantly the normal rate. I’ve seen several of these offers that are great, until the offer is over and then you’re hit with a 29.99% rate. Obviously, the extra savings of the low rate wouldn’t outweigh the normal rate if you’re transferring a balance from a card that only had a 8.9% rate!

Be careful. Learn what you can and make as educated of a choice as you possibly can. I don’t condone using credit cards because I know first hand the damage they can do to a persons financial life, but I recognize that these offers can be a very valuable tool for the responsible few who have learned to handle their money properly.

Using 0% Interest Rate Credit Cards is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

First, they do it because every open account costs them something.  It may not be much, but they still have to process the data and maybe even send out a statement.  Many have moved to not sending out statements on accounts that haven’t been used, but some still do.  Most importantly, any open account is an open credit line.  It’s a potential liability for the credit card company.  If you go from having no balance to maxing out a 5000 card, you’ve just added $5000 in liability to the company’s bottom line.  Not to mention that doing so is a likely red flag for impending financial trouble and that makes the liability a risky liability.  Any way you look at it, that isn’t good for the company.

Of course, if you continue to not use the card, it really doesn’t cost them much.  It’s just the potential that they are not willing to risk.  It’s a sign of increasing risk aversion on the part of the credit card companies.

So, why does all this matter to you?  Part of your credit score is based on your credit history.  The longer you have had an open account, the better it looks on your credit report.  It’s a sign of good credit management.  Another part of your credit score is the ratio of available credit to credit used.  So, if you have a $5000 credit line, and have only used $2500 of it, it looks better than if you had a $2500 credit line and had used $2000 of it.  If you have a credit card that you aren’t using, it’s adding to that unused portion of your available credit.  That’s good for your credit score.  But if the credit card gets closed, you don’t have that unused credit available anymore and your ration goes down.  And so does your credit score.

In both cases, the dip in your credit score is likely to be fairly small.  And it is likely not a huge problem.  But it is something you should be aware of if you had been planning on applying for any type of loan and have had a dormant credit card closed recently.  Also, if you are holding a card that you haven’t used recently and doesn’t have a balance, and want to keep it from closing, you can make a purchase with it once every couple of months to keep it active.  Just make sure to pay it off right away.

Unused Credit Cards are Being Closed is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.