You need to be able to yes to the following questions if zero percent credit cards are to be a good option for keeping your short-term budget in order:
Are you looking for a short-term solution (measured in months), rather than a long term 0% credit arrangement (measured in years)?
Are you certain you can afford, and won't forget to pay the minimum monthly payback on the credit card (on time!) for each month the 0% term runs?
Do you have a plan to pay off the 0% credit card balance, in full, on or before the last date of the zero percent deal?
Is your credit check good? For those with a tainted credit history, you will probably not be able to, in the first instance, get a 0% credit card deal -- so this may not be an option for you: Is your credit score good?
Do you need to borrow new money -- or use the zero percent period to do what's called a balance transfer to pay off existing debt? Be sure to get the best deal that suits your borrowing pattern.
Are you looking for a short-term solution (measured in months), rather than a long term 0% credit arrangement (measured in years)?
Are you certain you can afford, and won't forget to pay the minimum monthly payback on the credit card (on time!) for each month the 0% term runs?
Do you have a plan to pay off the 0% credit card balance, in full, on or before the last date of the zero percent deal?
Is your credit check good? For those with a tainted credit history, you will probably not be able to, in the first instance, get a 0% credit card deal -- so this may not be an option for you: Is your credit score good?
Do you need to borrow new money -- or use the zero percent period to do what's called a balance transfer to pay off existing debt? Be sure to get the best deal that suits your borrowing pattern.
Credit cards - the 'no-nos'
What not to do with zero percent credit cards:
Never, ever use a zero percent credit card to buy stuff that you know you have no immediate hope of paying back!
Nor should you use the tempting offer of "free money" (for a set period, of course) to buy your way out of existing debt. Sooner or later, if all you've done is pay the minimum monthly payments, you will be paying the full market rate (APR %) for the money you borrowed, PLUS any additional debts you may have.
What you DON'T want is a vicious cycle of spend, debt, spend. Eventually, your credit rating will run out if you do this, and you'll be paying handsomely for the money you borrowed. Its a case of horses for courses, where the type of debt you incur (in this case short term) must be met in time.
If you need a long-erm constant influx of money that your earnings or lifestyle doesn't support, then credit cards, zero percent or otherwise are NOT a solution for you.
What not to do with zero percent credit cards:
Never, ever use a zero percent credit card to buy stuff that you know you have no immediate hope of paying back!
Nor should you use the tempting offer of "free money" (for a set period, of course) to buy your way out of existing debt. Sooner or later, if all you've done is pay the minimum monthly payments, you will be paying the full market rate (APR %) for the money you borrowed, PLUS any additional debts you may have.
What you DON'T want is a vicious cycle of spend, debt, spend. Eventually, your credit rating will run out if you do this, and you'll be paying handsomely for the money you borrowed. Its a case of horses for courses, where the type of debt you incur (in this case short term) must be met in time.
If you need a long-erm constant influx of money that your earnings or lifestyle doesn't support, then credit cards, zero percent or otherwise are NOT a solution for you.
Are you a forgetful kind of soul?
If you are anything like me, you forget stuff. All the time! Even if you followed my major 101 credit card advice above, and set up a standing order or monthly direct debit to ensure you never miss a minimum payment (and thus hang on the zero percent rate for the headline duration), you may well tend to forget just when the interest free period expires. Doing so can be costly, because, suddenly, one month you will start paying the APR on your debt. It hurts and its expensive when you forget when your interest free period expires.
So get a diary! Put it on a calendar! Put it in your email reminder program. Write it on your wall -- just don't end up forgetting when your interest-free credit card period eventually runs out. And put it somewhere you are sure to be reminded in the 8,12, 16, 18 months when it expires.
Diarise it so that, one month or so before you start paying interest, you can decide if you can pay it off in full (if you took my advice above and looked upon it merely as short-term, interest free loan then you may well have enough money by the interest free term end). But if you can't, you have time to move the remaining balance, minus any you have paid to a new zero percent card. Dont pay any more than you have to by being prepared!
If you are anything like me, you forget stuff. All the time! Even if you followed my major 101 credit card advice above, and set up a standing order or monthly direct debit to ensure you never miss a minimum payment (and thus hang on the zero percent rate for the headline duration), you may well tend to forget just when the interest free period expires. Doing so can be costly, because, suddenly, one month you will start paying the APR on your debt. It hurts and its expensive when you forget when your interest free period expires.
So get a diary! Put it on a calendar! Put it in your email reminder program. Write it on your wall -- just don't end up forgetting when your interest-free credit card period eventually runs out. And put it somewhere you are sure to be reminded in the 8,12, 16, 18 months when it expires.
Diarise it so that, one month or so before you start paying interest, you can decide if you can pay it off in full (if you took my advice above and looked upon it merely as short-term, interest free loan then you may well have enough money by the interest free term end). But if you can't, you have time to move the remaining balance, minus any you have paid to a new zero percent card. Dont pay any more than you have to by being prepared!
So, we need to be certain, when applying for a 0% credit card that we can pay off the balance, at the end of the interest free period, IN FULL. Credit card companies will penalize heavily those than can either not do this -- AND those that fail to meet the minimum monthly payments.
My first major advice with 0% credit cards is this: whether you've taken out the card for new spending, or performed a balance transfer, YOU MUST NEVER SKIP A MONTHLY MINIMUM PAYMENT. EVER. Its easily done. All you have to do is forget, just one time, to pay it, and your zero percent deal is suddenly gone. This is almost always the case with any 0% credit card arrangement. So, set up a direct debit to come straight out of your bank on an agreed day every month to cover the minimium payment. That way you can't forget! Always try to pay off more than the minimum if you can, but at least if you do this, and you do forget to top up the monthly credit card balance, you wont lose the zero percent deal.
My first major advice with 0% credit cards is this: whether you've taken out the card for new spending, or performed a balance transfer, YOU MUST NEVER SKIP A MONTHLY MINIMUM PAYMENT. EVER. Its easily done. All you have to do is forget, just one time, to pay it, and your zero percent deal is suddenly gone. This is almost always the case with any 0% credit card arrangement. So, set up a direct debit to come straight out of your bank on an agreed day every month to cover the minimium payment. That way you can't forget! Always try to pay off more than the minimum if you can, but at least if you do this, and you do forget to top up the monthly credit card balance, you wont lose the zero percent deal.
Credit cards with 0% come in two major flavors:
You need to decide if your aim is to:
a) Set up a 0% card for new borrowing
b) Set up a 0% card for an existing credit card debt.
For new borrowing, the best possible deal is one where the 0% interest period is the longest you can find. Offers from various credit card companies are subject to a lot of competition, and right now the very best deals are offering up to 18 months interest free on new purchases. Seek out the best deals online, or in the local or national press. Compare reviews of customer service, if its important to you -- or simply hunt down the longest zero percent deal you can find. Up to 12 months at the moment is average, though exceptionally you may find up to 18 months interest free credit avaiable.
When you are transferring an existing credit card balance to a new 0% card (on 'balance transfers') what you are really doing is giving yourself more time to pay off an existing debt, without incurring any monthly interest charges. But there is a cost to pay. Again you need to shop around: credit card companies not only differ in the length of the interest free period they offer, but how they make charges at the time of the movement of money from your old card to your new card differs. Most will charge a fixed percentage of the amount you want to transfer, or a fixed fee. Some may charge both. Be sure to ask, during your application, exactly what fees there are and what they are for. In this way, you again shop around for the best deal online, nationally or locally until you find the most cost-effective to move your balance, and, at the same time, extend the time over which you can pay it back without having to pay any interest.
You need to decide if your aim is to:
a) Set up a 0% card for new borrowing
b) Set up a 0% card for an existing credit card debt.
For new borrowing, the best possible deal is one where the 0% interest period is the longest you can find. Offers from various credit card companies are subject to a lot of competition, and right now the very best deals are offering up to 18 months interest free on new purchases. Seek out the best deals online, or in the local or national press. Compare reviews of customer service, if its important to you -- or simply hunt down the longest zero percent deal you can find. Up to 12 months at the moment is average, though exceptionally you may find up to 18 months interest free credit avaiable.
When you are transferring an existing credit card balance to a new 0% card (on 'balance transfers') what you are really doing is giving yourself more time to pay off an existing debt, without incurring any monthly interest charges. But there is a cost to pay. Again you need to shop around: credit card companies not only differ in the length of the interest free period they offer, but how they make charges at the time of the movement of money from your old card to your new card differs. Most will charge a fixed percentage of the amount you want to transfer, or a fixed fee. Some may charge both. Be sure to ask, during your application, exactly what fees there are and what they are for. In this way, you again shop around for the best deal online, nationally or locally until you find the most cost-effective to move your balance, and, at the same time, extend the time over which you can pay it back without having to pay any interest.
I hope all the above is useful advice; 0% credit cards can be a useful way to service a manageable debt, if you are careful with them!
You can read more of my money-saving articles from the homepage.
You can read more of my money-saving articles from the homepage.
You can read more about 0% credit cards: cutting costs here
Cutting costs, saving money in 2012: Start by making sure you are getting the most of 0% credit
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