Here’s how to make 0% APR financing really work for you.
- Using 0% APR credit cards can be a smart money move.
- Remember to adjust your budget and make a plan to pay off your purchase before the end of the 0% period.
In the last three years, I have financed a smartphone, two tablets, a laptop, a smart watch and two televisions, as well as a large appliance for my home. I’ve spent about $4,000 total… and exactly $0 in interest. What is my secret?
I used credit card financing at 0% APR. However, these cards have a catch, and if you don’t follow it, you may owe interest on your big purchases. Nobody likes interest on credit cards, and in fact, having to pay interest charges is one of the downsides of using a credit card. So, if you’re going to use a 0% APR card promotion the next time you spend a large amount of money, be careful and make sure you read the terms and conditions and make a plan to pay before interest is charged on your purchase. .
How does the 0% APR work?
0% APR credit cards (which are available from many major banks and card issuers) come with a promotional period during which no interest will be charged on your purchases. APR stands for “annual percentage rate” and most credit cards come with a variable APR, which means your interest rate will change over time. If you get a card with 0% to start with, it will usually be for a set period of time. This often begins when your card application is approved and typically lasts at least six months, and often longer. It will be defined in months or in billing cycles, which are also monthly.
These offers are sometimes available on store credit cards as well, but the caveat is that the promotional period is usually shorter and sometimes depends on how much money you’re spending (eg: spend $1,000 and you’ll likely have a longer 0% APR period than if you spent just $500). Six to 12 months of deferred interest is a common offer for a store credit card. However, one potential advantage of a store card is that if you later make additional purchases above a certain dollar amount, you could end up with another 0% APR period. This is a handy trick to remember if you shop at a certain store frequently. I made several purchases at a large electronics store with your card and never paid interest.
So what’s the catch?
Unfortunately, it can be easy to fall into the trap of thinking that since no interest will be charged at first, you can put off paying off the card. This is a bug, and my secret is that I never let this happen. I didn’t even let it come close to happening. When I make a big purchase, I do the numbers myself.
A credit card issuer will provide you with a suggested minimum payment, but surprise! That may not be enough to fully pay for the purchase during your 0% period. It is much better to do the calculations yourself. If I’m paying $500 and getting 12 months of 0% APR, that gives me an absolute minimum of $41.66 per month to pay before interest on the balance is assessed.
Make a plan if you can
While it’s best to budget, plan, and save for a big purchase, sometimes you don’t have the choice or the time to do so. My clothes dryer started failing last fall. This wasn’t ideal, but I’m a thrifty person and decided to try to drag the dryer around as long as I could while I made a plan.
That plan was to apply for a credit card from a big hardware store that could sell me a new dryer at a fair price, deliver it, and also take the old one away for a nominal fee. They offered me 12 months of 0% APR for the purchase of my dryer.
I also took a look at my budget to see where I could cut some expenses to immediately transfer that money to the purchase of the dryer. I was more than approved to replace my old dryer, and when it completely stopped working a few months later, I was good to go.
New dryer and a credit hit!
I ordered my new dryer, they removed the old one and I immediately started paying more than the minimum required for my new dryer. This is my best advice to always avoid interest on 0% APR credit card purchases. Remember the math we talked about for setting your own minimum payment? With a little planning, budgeting, and a little extra work, I can scrimp and save and add even more money most months. I paid for my new dryer three months after I got it, and that payment later showed up on my credit report, lowering my credit utilization ratio and improving my credit score. A new, more efficient dryer and increased credit. Talk about a win-win!
The next time you’re faced with a big purchase, consider a credit card with 0% financing. If it’s a general credit card, you’ll probably have a longer period of time to pay for your purchase. If it’s a store credit card, you may have less time, but if you keep the card in good standing and use it for several large purchases, you’ll often get multiple periods of 0% APR. Run those numbers, adjust your budget, and make those higher minimum payments before you’re charged interest!
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