"I'm living so far beyond my income that we may almost be said to be living apart."
-- e.e. cummings
Living beyond your income may be fun for a while, but it can ultimately result in financial disaster -- in some cases, leading to the loss of your home. Thus, it's rather critical to pay off any high-interest-rate debt pronto, so that the rest of your financial life can run more smoothly and you can meet your financial goals, such as saving for retirement and/or putting your kid through college. A credit card with a 0% introductory annual percentage rate (APR) can be quite helpful for that.
A 0% intro APR credit card may also be referred to as a balance-transfer card and its main feature is that it permits you to take debt from one or more places (such as a credit card with a big balance due) and transfer it to the new card, where it will not be charged interest for a period of time. During that time, you can work hard to pay down or, ideally, pay off your credit card debt. Here are some handy tips for getting and using a 0% intro APR credit card.
Tip No. 1: Choose the card that will serve you best.
First off, understand that credit cards with a 0% introductory APR vary in what they offer. Some will offer the 0% rate for just a year or so, while many will extend it for the first 15 to 21 months. (Read up on the best balance-transfer credit cards and you'll see some great cards with generous terms.)
Next, note that while some cards with 0% APRs charge no balance-transfer fees, others might charge 3% to 5% or so of the sum you transfer, which could amount to hundreds of dollars. That can defeat the purpose of transferring your balance, so if you're looking to transfer a significant sum, favor cards with no fees. Read the fine print, too, as there can be limits to just how much you can transfer.
You have to look at the big picture, too, to see what will serve you best. You might find a great card with a very long introductory 0% period that charges a balance-transfer fee. If so, it might still be worth paying a few hundred dollars instead of paying much more in interest to your existing card(s). And a card with a relatively short teaser period can be just fine if your balance owed isn't enormous or if you plan to be paying it off quickly.
It's also good to opt for a card with no annual fee -- but if you end up with an annual fee, try calling the card company to see if they will waive or reduce it. Many consumers have had good luck doing that.
Tip No. 2: Read the fine print for three critical details.
While the length of the teaser period and whether there is a balance-transfer fee are both very important factors to look at when shopping for a card, there are three other factors that deserve special attention, and you might have to look closely to find them.
- Purchases versus transfers: Once you transfer a balance, you might start charging other items to the card. So here's something to know: Some 0% introductory APR credit cards will charge you 0% interest on both purchases and transfers, but others will only apply the 0% rate to one or the other. Be sure you know what a given card will do. If the 0% only applies to balances transferred, you might not want to charge anything else on the card. If it only applies to purchases, then the card won't be much help in paying down existing balances owed.
- The post-0% interest rate: Next, find out what kind of interest rate you'll face after the teaser period runs out. Ideally you'll have paid off all your debt by then and will be vowing to pay all future credit card bills off in full and on time each month. But if that doesn't turn out to be the case, you don't want to be saddled with an interest rate that's very high.
- Penalty APRs: Finally, try very hard to select a card with no "penalty APR" -- and perhaps require that of any card you choose. Many cards will jack up your interest rate to a very high level (25% to 30% is common) if you're late with just one payment. That's called a penalty APR and it can immediately wipe out the reason you got the card in the first place. Lots of cards do not feature penalty APRs. Favor those cards.
Tip No. 3: Have a plan and stick to it.
A last tip is this: Don't just sign up for a 0% introductory APR credit card, transfer a balance, and hope for the best. Have a plan -- and stick to it. Assess how much you owe and come up with a schedule for how you will pay it all off by a certain date. You may need to work a second job for a while or you may need to engage in some aggressive cost-cutting -- or perhaps you'll do both.
There are lots of smart ways to go about making sure you don't rack up more debt while you're paying off your credit card balances -- such as locking your credit cards up in a box or freezing them in water in your freezer. Studies have shown that we spend more when we use charge cards, and you will be wanting to avoid succumbing to temptation to spend on things you don't really need. It's not fun working hard to pay off debt, but it can be done -- we've heard from people who have paid off $100,000 or more! -- and once you succeed, you can work on building a stronger and happier financial future.
So go ahead and consider signing up for a 0% introductory APR credit card, but do so in a savvy manner, and make good use of a well-chosen card in order to meet your financial goals. Remember, too, that some of the best cards require good credit scores, so you might want to increase your credit score as soon as you can, too. One of the best ways to do so is to pay all your bills on time.
The Motley Fool has a disclosure policy.