Category: Credit Cards

Credit Cards

When is a 0% Credit Card a Bad Idea

A 0% credit card can sound like a really great opportunity. You will be able to have a free loan which you can use for whatever you wish. You can take advantage of not having to make more than a small repayment each month and have the money for free.

It all sounds fantastic, buy now and pay later and in the meantime no interest. However, the bank does not lend for free forever, they want to make a profit from you and this is where a 0% can trap you. Once the 0% period is up, they will start charging you interest and this can be extremely high. You could find that it is very much higher than a conventional credit card as well and it could mean that you end up paying far more in interest than you would have, had you had a conventional one. It may not be that easy to pay off either, switching the debt to another credit card can often came with a balance transfer fee.

Another problem with a 0% card is that it is really tempting to spend as much as you can on it. Take full advantage of all of that free money. This is perfectly fine if you put money away so that you have enough in savings to pay off the credit card once the interest rate goes up, but most people will not think of doing this. There is also the risk that even if you do save the money, you may need extra money, use those savings and then not have enough saved up to pay it off. So you could end up buying all sorts of things that you do not really need, thinking that you are getting a great deal, but end up not being able to pay off the debt and needing to pay a lot of interest on them.

Some people are better with money than others. You may know whether you are or not, based on past experiences or you may not be sure. Consider if you had a 0% credit card how you would use it. Would you treat yourself to all sorts of amazing things or would you carefully use it to buy essentials and save the money you would have spent to pay the card off before the 0% period ends? Doing the second option is obviously the most sensible, but most of us are not that self-disciplined with money and are likely to see the card as a bit of a windfall and have a bit of fun with it. It is really worth considering what you are likely to do and whether you will use it wisely.

If you do not really need to borrow money, but just are tempted by getting the card, then this is not good. Unless you have plans on using it sensibly and perhaps were planning on borrowing money anyway and saw this as a good way of doing so, it is best to leave it alone. You may of course decide to use it instead of your current credit card and in the meantime get what is owed paid off your current card. This could work out, but you will still need to find the money to pay off the 0% card and the interest will be high if you do not pay it off before the 0% period ends. Therefore you really need to give some time to decide whether this card is the right thing for you or not.

So it is worth thinking hard before applying for a card like this. Make sure that you think hard about why you want it, how you will use it, how you will pay it off and whether it will be cheaper for you to find a different way to borrow money or in fact whether borrowing is the right thing to do at all. Try not to be tempted just by the good rate but consider the consequences of getting it and what will happen when the rate goes up and how you will manage the repayments. It could even be worth discussing with a financial advisor before you fully make up your mind.