subject: Zero Interest Credit Cards: Windfall Or Risk? [print this page] Zero interest credit cards are offered by a variety of different credit card companies and banks. Normally a zero interest card will start out as a special offer from the company as a way to attract new business to their firm. They offer a zero percent interest rate on purchases for a set amount of time. Usually the advertisement will read something like this: "Zero interest on purchases for up to a year!"
At first glance zero interest credit card offers seem too good to be true as it may seem that this means any purchase you make with this credit card for a certain time period will not accrue any interest. However, this is not the case. Once the introductory period of the card is over, in most cases interest will be back billed based on the balance you currently have on the credit card.
In other words, even if you purchased $100.00 worth of items in May and the zero percent interest ended in June, you are still liable for the interest on the balance not paid off in June. In this example, if you pay off $50.00 of the $100.00 by June, you would still have to pay interest on the $50.00 not paid off.
The Pros and Cons
Zero interest credit cards offer a great many positive benefits to consumers. First, they give a customer incredible spending power without immediate consequence. As there is no interest charged on your purchases for a given time period, a zero interest credit card can work almost like a debit card (i.e. no finance charges and no fee for usage).
Secondly, zero interest credit cards can help you consolidate higher interest cards and pay off the balances faster. If you have one or two high interest credit cards, simply making the minimum monthly payments may at times be tough. However, you can consolidate high interest debt onto a zero interest credit card and pay it down faster because your entire payment is being applied to the principal instead of the interest.
Unfortunately, the major negative consequence of working with this type of cards is that the interest is usually charged retroactively, thus if you do not pay the entire balance of purchases prior to when the introductory interest rate wears off, you still will have finance charges and interest charges to pay.
Conclusions
Zero interest credit cards are a great way to gain control of your debt situation or increase your buying power for a short amount of time. However, unless you are sure you can pay the balance off within the given time interest free time frame, be aware that you will still be held accountable for interest charges applied retroactively to any outstanding balance.
