We’ve all seen them in our junk mail: 0% interest rate credit cards as easy as 1-2-3. Keep in mind that the credit card companies are in business to make money and they can’t make any money if they don’t charge you any interest, so watch out for hidden fees and extra costs that you may not be aware of when you apply for a new 0% credit card.
The 0% offer is called a ‘teaser rate’ because it looks tempting, but when you apply you may find out there is a catch. The most popular catch is that the offered interest rate (0%) is for a limited time only, usually a couple of months, but perhaps up to a year. When you read the fine print you will discover that after the allotted time period your interest rate will take a massive jump. If you can’t find the standard rate in the provided literature, be sure to call the credit card company and ask about the standard rate.
Another trick the credit card companies will often use is to entice you with a 0% rate on balance transfers, they especially like to do this with student credit cards. In other words, if you carry a balance on another card you can transfer this balance to your new card and pay 0% interest. Sounds great, especially if your old cards have a high interest rate, but beware. Once again, pay special attention to the fine print as often there is a transfer fee that can be as high as 3% of the amount transferred. There may also be a time limit on the low rate, and keep in mind that any new purchases will carry the standard interest rate (not the advertised 0% on transfers). If you think this is a good idea, make sure you know all the details and pay off that balance within the time limit, without making new purchases, otherwise you will be stuck with another high interest card. And really, who needs another one of those?
There is another common fee that may apply if you are late making a payment. Whatever you do, be sure to make your payments on time, or failing that, be sure you are aware of the consequences of a missed or late payment. Each card is slightly different, but most will charge you a fee or automatically increase your interest rate. Some cards will even damage your credit score. Don’t discount this, as your credit score is used to determine your eligibility for future loans. If your credit score is low you may not be able to get a loan, or if you can get one it may cost more than it would if you had good credit.
There is one other hidden fee that we have yet to mention: Rising interest rates, which are totally out of your control. The federal government set interest rates and banks will often respond to rising rates by increasing loan and credit card rates. If you find yourself stressing out due to rising interest rates, give your credit card company a call and ask for a lower rate. You would be surprised how many people are afraid to pick up the telephone and ask, but very often the company will value your business and will easily give you a lower rate. It helps if you have a good credit score (check your credit score for free), but it never hurts to ask for a better price.