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How do 0% credit cards work?

With only 60% of consumers paying off their credit card in full each month, a significant number of people are paying interest on their debt. One alternative that keeps interest costs to a minimum is a 0% credit card.

The two types of 0% interest credit card are those that offer an introductory 0% interest rate on purchases, and those that offer a 0% interest rate on balance transfers, i.e. existing debt transferred to a new credit card.

With both types of card, the introductory interest rate is for a specific time following account opening. After the introductory period, the card’s usual APR will be charged.

Here’s how 0% cards work.

0% on purchases

There are a wide range of credit cards that offer an introductory 0% period on new purchases following account opening. This makes them appealing for consumers who are expecting to make one or more major purchases in the near term, with them benefitting from paying no interest on debt incurred on new purchases for a set period.

A 0% rate will usually only apply for a set period. If there is an outstanding balance at the end of the introductory period, then interest will start to be charged. Further purchases after the introductory period ends will also be subject to the card’s APR. As such, consumers are far better off ensuring they repay any amounts due before the 0% interest period ends.

0% on balance transfers

There are also a number of credit cards available at the time of writing that offer a 0% interest rate on debt transferred from an existing credit card. Balance transfers are often subject to a fee, which can reduce their appeal. However, the fee charged for undertaking the balance transfer is often lower than the amount of interest that would have been repaid over the 0% period had the balance transfer not been undertaken.

Once the balance transfer period comes to an end, interest starts to be charged. Many balance transfer cards have higher APRs than credit cards that do not offer the feature. As such, for individuals who do not think they will be able to clear their debt during the 0% period, it is worth checking that a balance transfer card will lead to lower interest payments versus an existing credit card over the long run.

Can everyone get 0%?

Obtaining a 0% interest rate is dependent on being approved for the card in question. Some applicants may be offered a 0% interest rate for the advertised period, while others may be offered a 0% interest rate for a shorter time period. Some applicants may not be approved for a 0% interest credit card. The eligibility checker tool that many credit card issuers offer provides guidance on the chances of being accepted for a particular card without impacting negatively on an individual’s credit score, and may therefore be worth using.

My verdict on 0% credit cards…

While 0% credit cards can reduce interest payments, avoiding debt in the first place can be the most effective means of improving an individual’s financial future. Therefore, it may be prudent for consumers to try and live within their means and cut back on non-essential spending where possible. Saving for goods and services rather than using a credit card may be less exciting in the short run, but can lead to a better financial position in the long run.

Ready to find a 0% credit card? Check out out top-ranked credit cards today

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