What can I do with a 0% APR Credit Card?

by Rocket Finance

I generally oppose adding debt, especially when debt is being used to finance a lifestyle that does not fit your income. However, there are times when a loan is the only way to solve a major problem. Obviously, you will want the lowest interest rate possible on that loan. Introductory offers on credit cards sometimes provide a short-term solution to an emergency or jump start your efforts to get out from under a debt snowball.

Last week we discussed and balance transfer arbitrage, the app-o-rama and began a discussion on how to use a 0% APR introductory offer from a credit card company. Today we will finish that discussion. Here are some possible scenarios and tips:

0% Purchase rate for 12 months

If you get an introductory offer for 0% on purchases for any length of time, it is an easy way to catch up on your monthly budget and possibly earn a little bit of float interest. Here is how you do it – on payday, deposit your entire check into your savings account. (I use FNBO Direct) Then use your new card to follow your regular budget to make purchases for the month. You can even pay many bills with a credit card. I pay my wireless bill with one every month and get cash back from the card. At the end of the billing cycle, only pay the minimum amount plus $10. Let the rest of your money sit in your savings account. Repeat this for twelve months and then use your savings to pay off the card at the end of the year. Remember do not to go over your limit and do not purchase items outside of your budget. WARNING: If you lack discipline, if you can’t follow a budget, then do not even attempt to pull this off.

0% APR for balance transfers – cash method

This is tricky sometimes, but there are ways to get a large amount of cash to sit in your bank account and earn interest.

The first way is to have the introductory balance transfer applied to an existing card that has no balance. For instance, you have had card A for three years and you are no longer using it. You apply for card B that has a great balance transfer offer. During the application process, you request a balance transfer payment to be made to Card A. The balance transfer shows up as a credit on Card B statement account. Just request a refund check and deposit it in your bank.

Another method is to charge up Card B with purchases that you normally make and then transfer the balance to Card A at 0% APR. Then let the money that you usually use to pay off your card every month sit in your savings account earning interest until the introductory period is up.

When the credit card company sends you balance transfer checks, you can often just deposit the checks into your savings account. Even online banks have a procedure for depositing physical checks.

If you have a checking account with the same bank as the credit card for which you are applying, ask to have a balance transfer deposited directly into your checking account. Bank of America did this for me.

0% APR balance transfer – debt reduction method

If you  have staggering piles of high interest debt, you can use a 0% introductory offer in order to pay off more principle. For instance, if you have $10,000 worth of credit card debt at 18%, a 0% balance transfer could save you almost $1,800 in the course of a year. With no interest for a year, you could put all of that $1,800 toward principle instead of toward interest. Furthermore, if you have that kind of debt, your credit score is probably in the tank. Twelve months of on-time payments and reducing your overall debt by almost 50 percent can only help. Even a 0% balance transfer with a 3% fee is a good idea if you are paying the standard credit card APR’s.

A few more suggestions:

  • Make sure you research the card you want. Do your homework.
  • Remember that a 3% fee for a six month balance transfer translates to 6% APR.
  • Do not close credit card lines of credit, even if you no longer use the card. This hurts your credit score.
  • If you have more than one existing card with a particular company, ask to combine lines of credit before applying for another card. This might allow you to get a higher amount of money from a balance transfer offer.
  • Pay on time.
  • If you have a balance transfer on a card, do not use that card for purchases. Your payments will be applied to the balance with the lower APR.
  • Don’t be late in paying off your balance in full. Call to make sure that you know when interest will start to accrue.
  • Make sure you check your credit score before you apply for a card. Here is a good place to find your score.

Credit card companies are looking for ways to make money from their products. They exist to make a profit. But if you are careful, read the fine print and stick to your plan, your plastic can make you a little green.

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