How I've Financed $4,000 Worth of Big Purchases Without Paying a Dollar in Interest

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KEY POINTS

  • 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 0% period ends.

Here's how to make 0% APR financing really work for you.

In the last three years, I've financed a smartphone, two tablets, a laptop computer, a smart watch, and two TVs, as well as a large appliance for my home. I've spent about $4,000 in total…and exactly $0 in interest. What's my secret?

I used 0% APR credit card financing. There's a trick to these cards, though, and if you don't follow it, you may find yourself owing interest on your large purchases. No one likes credit card interest, 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 chunk of money, be careful and make sure you read the terms and conditions and make a plan to pay it off before interest is charged on your purchase.

How does 0% APR work?

Credit cards with 0% APR (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, meaning your interest rate will change over time. If you get a card with 0% to start with, usually it will be for a set period of time. This often starts when your card application is approved, and usually lasts at least six months, and often longer. It will be defined either in months or in billing cycles, which are also monthly.

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These offers are sometimes also available on store credit cards, but the caveat is that the promotional period is often shorter and sometimes dependent on the amount of money you're spending (for example: Spend $1,000 and you'll probably have a longer period of 0% APR than if you spent only $500). Six to 12 months of deferred interest is a common offer for a store credit card. A potential upside of a store card, however, is that if you later make additional purchases over a certain amount of money, you could end up with another period of 0% APR. This is a handy trick to remember if you shop at a certain store frequently. I have made multiple purchases at a big-box electronics store using its card and never paid interest.

So what's the trick?

Unfortunately, it can be easy to fall into the trap of thinking that since no interest will be charged at first, you can hit snooze on paying off the card. This is a mistake, and my secret is that I never let this happen. I never even let it come close to happening. When I make a big purchase, I run 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 off the purchase during your 0% period. It's far better to do the math yourself. If I'm paying $500 and I get 12 months of 0% APR, that gives me an absolute minimum of $41.66 per month to pay it off before interest gets assessed on the balance.

Make a plan, if you can

While it's better to budget, plan, and save for a big purchase, sometimes you don't get the choice or don't have the time to do so. My clothes dryer started acting up last fall. This wasn't ideal, but I'm a thrifty person, and I decided to try and limp the dryer along for as long as I could while I made a plan.

That plan involved applying for a credit card from a big-box hardware store that could sell me a new dryer at a fair price, deliver it, and also haul away my old one for a nominal fee. I was offered 12 months of 0% APR for my dryer purchase.

I also took a look at my budget to see where I could trim some spending to immediately roll that money into the dryer purchase. I got approved for more than enough to replace my old dryer, and when it stopped working altogether a few months later, I was ready.

New dryer and a credit bump!

I ordered my new dryer, got my old one taken away, and immediately started paying more than the minimum required for my new dryer. This is my best tip for always avoiding interest on 0% APR credit card purchases. Remember that math we talked about to set your own minimum payment? With some planning, budgeting, and a little extra work, I can scrimp and save and add even more money most months. I paid off my new dryer three months after I got it, and that pay-off then showed up on my credit report, lowering my credit utilization ratio and improving my credit score. A new and more efficient dryer and higher credit. Talk about a win-win!

The next time you find yourself facing 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 off your purchase. If it's a store credit card, you may have less time, but if you keep the card in good standing and go on to use it for several big purchases, you will often get multiple periods of 0% APR. Run those numbers, adjust your budget, and make those higher minimum payments before you get hit with interest charges!

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