Zero-interest credit cards 101

Last Updated, January 15, 2019


Zero-interest credit cards sound like the best thing ever. Because the first thing that probably goes through anyone's mind, if they don't know much about these cards, is, "Wow, zero interest on my credit card? I can buy whatever I want and never pay interest?"

But like anything that sounds too good to be true, zero-interest credit cards aren't exactly what they seem.

Make no mistake, they can be pretty awesome, but a zero-interest credit card only has zero interest for a certain period of time and then it turns into a regular credit card - yes, that means there will be interest.

Understandable, says Cal Cook, a finance investigator at ConsumerSafety.org, a consumer education website. "The credit card companies need to make money somehow," he says.

Overall, though, Cook says that no-interest credit cards can be a useful tool, especially for "small purchases that you're sure you can pay off."

>MORE: Our picks for the best 0 percent APR credit cards

Of course, they can be helpful for the big purchases, too. But, again, as long as you're certain you can pay off the purchase. All of this means that if you use 0 percent APR credit cards wisely, you'll probably think it was a very smart financial decision. If you use it badly, you may look back to the day you got one as one you wish your could go back and redo.

So let's make sure you use it wisely.


Yeah, we just covered this, but let's drill down a little more. Let's say you get a credit card that offers 0 percent interest for 12 months and over the next 12 months you pay off a sofa that you purchased for $1,500.

Meanwhile, your best friend buys a sofa for $1,500 (use your imagination; there's a sofa sale going on) and pays everything off over the same period with a credit card that has a 13.99 percent APR.

With your no interest credit card, you've spent $1,500. Your best friend spent $1,723.84 (the $1,500 plus an extra $223.84 in interest).

>MORE: Calculate what you'll spend on interest over a set period of time

So you can see that it's a wonderful money saver, a 0 percent APR credit card. If you want to make an expensive purchase and don't want to (or can't) pay it all off in that billing cycle, you can spread out the payments and keep your cash flow manageable. But, of course, that's assuming you paid off the $1,500 within 12 months.

Let's say, for the sake of argument, that you paid off $1,000 of the sofa and you still have $500 left over - and that you also bought a TV, a computer, some lawn furniture and a pizza. Once the zero-interest period ended, let's say you're left with a balance of $2,114.56. And your interest shoots up to a 13.99 percent APR, just like your best friend's (which is actually a pretty low APR, by the way). Well, you can see how suddenly the zero-interest credit card isn't as useful as you thought it would be. Suddenly, even if you're diligent and pay off that balance within the next 12 months, you'll pay an extra $315.55 in interest for those purchases.

And let's say that two months later, you have some car trouble, and you have to shell out a lot of money to get it fixed, and you miss a credit card payment, and your APR shoots up over 20 percent as a result. Do you really want us to show you the numbers for that? It isn't pretty.

Obviously the math and money only work out well if you pay off what you owe before the zero-interest period is over. If you struggle a lot with money, paying for some big purchase with a zero-interest credit card and hoping that you can manage to pay it off before the interest period ends is a huge gamble.


Read the fine print. You should do that with any credit card, of course. If you do read it, you may learn that some assumptions you had are wrong. For instance, zero-interest doesn't always apply to balance transfers (and so you may transfer that $7,000 debt only to discover your interest rate is higher than what it was on the old card), and there's likely no credit card that exists where you can have zero-interest on a cash advance. So especially if you intend to use the no-interest credit card for something other than new purchases, read through that contract with all of the legalese - or call customer service with a lot of questions prepared.

Don't miss a payment. Never a good idea to miss any payment with any credit card (it will ding your credit), but if you miss a payment with a zero-interest credit card, it may mean that your zero-interest period comes to a screeching halt far sooner than you expected. Remember - it's zero interest for a certain period of time NOT zero payments for a certain period of time. In all seriousness, if you're new to the world of credit cards, it can be easy to forget that.

>MORE: Jump down to our "Tips for using a zero-interest card" section

Be on top of the APR. Yes, the APR is zero. But what about afterward when it's no longer zero? If the APR jumps to some crazy percentage, or a percentage you consider crazy, will you be okay with that? Especially if you sometimes carry revolving debt? And if you plan on buying something big that will take you awhile to pay off, what happens if you don't pay it off? Is the interest actually deferred, meaning that if you don't pay off the debt, you'll be charged with retroactive interest for the full balance? Store branded credit cards are infamous for doing that.

Be aware of any fees. The term zero-interest might fool you into thinking your credit card has zero fees. But you want to look at the annual fee, the foreign transaction fee, balance transfer fee and so on. The fees may not be a big deal to you. Many credit cards have annual fees, for instance, but the rewards that come with them are so appealing that it negates the cost. But everyone's financial situation is different, and if zero interest is your main reason for applying for this card, a hefty annual fee may mean that this isn't the right card for you, even with a zero-interest period.

Pay attention to the length of time you'll receive zero interest. More than obvious, right? Still, it should probably be said. Some cards offer zero interest for six months. Others for 12. Some for 18. All the more reason to compare credit cards and not apply for the first zero-interest credit card that you see. Furthermore, some offer 0 interest for 18 months on purchases, but only for 12 months on purchases, for instance. Getting those confused could mean a hefty chunk of interest appearing on your statement.


That's the big question, isn't it? Are you looking at 0 percent APR credit cards because you have superior credit and you'd simply like to save even more money by not paying interest for a period of time? Then you're probably a fine candidate for getting a zero-interest credit card. As you probably know, when you have stellar credit, and your paychecks are plentiful, it can become even easier to save money, if you're looking for opportunities.

But just as positive money momentum can build on itself and save you even more money, you can create negative money momentum as well. And so if you're looking into getting a zero-interest credit card as a way to make a bad situation less bad, as noted earlier, you could be playing a risky game. What you don't want is for the no-interest credit card to eventually help your debt get worse.

Mainly, ask yourself - do you have a reason you want this card? If you're thinking of getting a zero-interest credit card as a way to manage holiday spending, for instance, in order to buy family and friends gifts without paying any interest, that's arguably a solid financial strategy and a perfectly good reason for getting a zero-interest credit card, assuming you know you can easily make your payments and your economy isn't likely to collapse in the near future.

Or maybe you know your car is on its last legs, and so you're not planning on spending anything, or anything major, with your zero-interest credit card unless you wind up at the mechanic's. That, too, seems like a sound plan. You'd be smart to also start putting money aside as well, but, hey, a zero-interest credit card could be a very helpful safety net - for the six months, 12 months or however long the zero-interest period lasts.

But if you just want a zero-interest credit card because it sounds like a good idea and you're already dreaming about your zero-interest shopping spree, well, that isn't necessarily a bad reason. But it's best to have a plan. Maybe it would be better to wait until you have a good reason before you start looking for some 0 percent APR credit cards.

Think of 0 percent APR cards as tools that have a specific purpose rather than a toy to play with on a rainy day.


This is a pretty easy, almost self-explanatory question, so we'll just run through the basics. When should you use your zero-interest credit card? When you…

…want to rack up your rewards. If you have a zero-interest credit card, you can spend more (within a budget you can pay off in the zero-interest period!) with that freedom of not having to pay interest for awhile. So while typically it's not a good idea to spend money you normally wouldn't spend just to get rewards, in this case, it might not be a bad plan. Obviously, you shouldn't use your credit card to pay for things you don't want, simply to get rewards. That would be pretty dumb. But if you're buying things you want and will need sooner or later, and you know you can pay everything off, this might be a good time to utilize your credit card to maximize your rewards as much as possible.

…want to avoid paying interest on necessary but expensive purchases that are going to take some time to pay off. The imagination can run wild here, why you might want to use your zero-interest credit card. Your home's heating unit broke down, and it's going to cost a mint to fix it. Your kid's college tuition bill is due, and you'd rather pay it now and then pay back your credit card slowly, over several months. It's the aforementioned holidays, and you have a lot of spending ahead of you, or your car broke down and needs expensive repairs. You want some new furniture and don't want to dip into your savings for it; you're financially responsible and would rather pay it off over several months and skip the interest. That, too, is reasonable. Life is expensive, and a zero-interest credit card can help with that, for a limited amount of time.


OK. So you're thinking that you're going to look around for a zero-interest credit card. But, as is hopefully already clear, don't just zero in (pun only slightly intended) on the first zero-interest credit card that you see. You'll want to think through a few issues first.

What's your credit score? Why does this matter? Because as a general rule, credit cards only offer zero-interest credit cards to people with extremely good credit. It may not seem fair since the people who are struggling with their money could use zero-interest credit cards the most. But people with good credit have the best track records for paying back loans, and credit card issuers, because they want customers who are likely to pay them back, reward them with the lowest interest rates - and you can't get lower than zero.

All of this means that if you have a fair or poor credit score, you might struggle to find a zero-interest credit card for which you'll qualify. Local credit unions or a bank with which you already have a relationship are likely your best options for a zero-interest card if you're in the fair/average credit range (roughly 630-689); a score below 630 likely means you won't qualify for a zero-interest card.

>MORE: Best credit cards for fair credit

Remember too that your credit score generally goes down slightly when you apply for any credit card. That means applying for the wrong card is likely to mean that not only will you be declined, your score may drop a bit as well.

What's the length of time of the zero-interest period? For obvious reasons, you should try to get a credit card with a long period of zero interest. Some credit cards offer as long as 21 months to pay for products and services without interest. Can you imagine if you applied for a six-month card without realizing that there were some that will let you pay without shelling out interest for 12 months, or 18 or 21 months? You'd be kicking yourself.

Now, your credit, again, has to be stellar to be approved for a credit card with a 21-month zero-interest period. Another reason to comparison shop: If you're planning on buying something big, you'll want to figure out how much money a month you'll like spend to pay it off. For that, you can use a payoff calculator (or any calculator, really). That said, what you spend a month to pay something off also depends on your card's monthly minimum payment.

Are there other features that the credit card has that you like, or dislike? That's important, too. If the APR is insane after the zero-interest period is over, or there aren't rewards you are likely to use, or you think the annual fee is too high, well, those are all good reasons to look for a better zero-interest credit card. After all, you're presumably going to keep using the card for years after the zero-interest period is over. It would be smart to like your credit card. Think of it as dating someone. The zero-interest feature is attractive, akin to someone's soulful eyes or appealing physique, and it may be what draws you in. But if you want a real relationship that goes the distance, your credit card better have some substance (i.e., brains and a personality).

Think about your long-term goals. Again, why are you doing this? Are you mostly thinking about getting a rewards card and using the zero interest to help you rack 'em up before you pay everything off within the intro period? OK, sounds good. Are you buying something big, and you want to help pay for it over the long haul instead of within a month? Again, that sounds great. Is this a Hail Mary pass to help you get you out of debt? Yikes. This may not go too well.


Once you have a no-interest credit card that you're excited about, applying for it is the easiest part of the process.

You'll need the usual information, like your name, address, Social Security number and annual income. You'll likely be asked if you're employed and how much your mortgage or rent is. You submit your information, and usually, within seconds, you'll have an answer. Or you may be told that you'll have your answer in a week or so. Which, unfortunately, as you know if you've been turned down for credit cards before, is also an answer.

But assuming your answer is that you were accepted, you should have your zero-interest credit card before you know it.


Ok, now that you've decided you need a 0 percent APR card and you've applied for the one that best meets your needs and fits within your credit score, you need to make a plan for using it well. Here are a few tips:

Don't max out the card. It could be tempting to treat this card like it won't have any impact on your credit score since it's basically a free loan during that zero-interest period. But that would be wrong. This card will still impact your credit utilization percentage. - the number that refers to how much of your available credit are you using at any given time; it's a significant part of what makes up your credit score.

Now, if you opened the card specifically to make a large purchase and pay it off over time and you don't anticipate needing to apply for a loan anytime soon, the hit your credit score takes when you all but max out the card probably won't be significant enough to matter. Just be laser-focused on paying off the card and bringing down that balance, and by extension improving your credit utilization. Which brings us to our next tip.

Make a plan for paying off the card within the zero-interest period. Whether you have six months or 21 months of zero interest, you'll want to do your best to have it totally paid off in that time frame.

Among the WORST things you can do with these cards is bask in the beauty of a zero-interest period only to wake up suddenly and realize you only have one month to pay off the balance before the APR shoots up.

Instead, do the math and figure out how much you need to pay each month in order to get the balance taken care of in time. Then start going after it right away. If your income and budget are steady, consider setting up a couple of automatic payments each month for a set amount that you know will more than take care of that balance within the 0 percent time frame. For instance, if you've put $10,000 on a card with a 12-month 0 percent period, you'll want to pay at least $834 on the card each month to pay down the balance in time.

If your income isn't regular enough for automatic payments, at least set an alert in your phone or on your calendar so that you remember to make at least the minimum payment each month before your due date.

>MORE: "How much should I pay?" calculator

Speaking of minimum payments. Don't rely on the minimum payment due amount to get your balance paid off within the 0 percent period; it simply won't do the trick. As noted in the tip above, you'd need to pay just under $834 each month to pay off that $10,000 balance in 12 months. There's no way your minimum payment on the card is $834. In fact, credit card minimum payments are often only 1-5 percent of the balance due plus whatever interest has accrued in that month (issuers also set a bottom minimum payment amount that it will never fall below). That means the minimum payment on a $10,000 balance with 0 percent interest could be as little as $100. No chance that pays off your balance within the 0 percent period.


Now that you know the ins and outs of 0 percent interest credit cards, go ahead and make them work for you! As with any credit card, there's a necessary level of responsibility and attention to detail that you must maintain in order for these cards to be helpful tools rather than financial traps. Be smart and then take advantage.


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