Carrying a credit card balance isn't always a mistake.
The interest rate on credit cards is much higher than the interest rate on many other kinds of debts. Credit cards also provide much less certainty about total payoff costs and payment timeline once you start to carry a balance on them.
You can get a personal loan and know up front what the loan will cost over time and when it'll be paid in full. But you can't really know that information with a credit card if you charge purchases, make minimum payments, and then charge more over time.
Because of the high rates and the uncertainty over total interest costs, my general rule is to avoid carrying a balance on my credit card -- especially since there are other ways to borrow that could be more affordable.
However, there is one exception to this rule, and one circumstance where I'd definitely be willing to owe money on a card. Here's what it is.
When carrying a card balance makes sense
I would be willing to carry a credit card balance only if I signed up for a credit card offering a 0% promotional interest rate in order to make a big purchase that I was confident I could pay off before the promotional rate ended.
See, many credit card companies aim to attract new customers by providing an interest-free period, such as no interest on purchases made for the first 12 months. If I needed to pay for something big that I couldn't afford to buy all at once, taking advantage of one of these offers would be a great financial decision -- as long as I was 100% confident that I could pay off the full balance by the end of the 12 months.
Using this approach would allow me to pay for my purchase over time without incurring interest costs that make the purchase more expensive. No other method of borrowing, even a low interest personal loan, would provide me the chance to finance the item without paying any interest charges at all.
Of course, the big catch with these types of cards is that the card issuer often expects that you'll run up such a high balance that you won't pay it off in full before the promotional rate ends. And if you make only minimum payments, you'd likely be left with a big balance at the end that you'd then be charged a fortune in interest on.
You can avoid this by figuring out exactly how much you need to pay to clear the debt before the promotional rate expires. So when financing my purchase, I'd see how much I needed to pay each month and set up automatic payments for that amount just to be sure I never incurred any interest costs at all.
By taking this approach, I could leverage the 0% offer and use the card as a tool, without falling into the trap of charging items and paying a huge credit card interest rate just to buy something that I couldn't really afford at the time of purchase.
Of course, there are times when life circumstances lead you to carrying a card balance. If you find yourself needing to borrow and won't be able to pay off your card before the end of a 0% rate, just be sure you explore all your options. These could include other borrowing methods or a balance transfer before your promotional rate ends so you can keep your borrowing costs to a minimum.
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