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Tricks 0% APR Credit Cards Play

Apr 27, 2008
Paying 0% APR is a very nice thing when you have debts. Many people get offers for these credit cards regularly. Some even take advantage of them.

Just be careful that they don't take advantage of you. There are a few tricks you should watch out for.

1. Balance Transfer Fees

These can add up quickly, but they're the only way to get your balance on a regular credit card over to your new 0% offer. These are often around 3%, and many companies have removed the cap. This means that while once your maximum balance transfer fee would be perhaps $75, now it can be much higher. A $5000 balance transfer at 3% means you'd be paying about $150.

That's not necessarily a bad thing. You just have to figure out if an immediate 3% is more than you'd be paying in interest over time. If you're paying it down quickly enough, and your current interest rate is low enough, you may be better off leaving well enough alone.

Do your math before you move your balances around.

2. Time Limits and Regular APR

How long do you pay 0% for? If you're not going to have the money paid off by then, once again you need to compare with what you would be paying.

If you get 0% APR with a 3% balance transfer fee and a 17% APR after the introductory period, take a look at what you're paying now. If it's the same or higher than the 18% of the new card, you definitely have a good deal. But let's see what happens to $5000 over 2 years for a 10% interest rate versus the 0% going to 18%. Minimum payments, no new charges.

After 2 years at 10%, you would still owe $3,340.29, assuming you paid 2.5% of the outstanding balance each month.

It's a bit trickier with the 0% card. You have to start by adding the 3% balance transfer fee, or $150 for a $5000 balance. Once again, making minimum payments only, that's a balance of 3800.69 at the end of the first 12 months. At the end of the 2 year period, you would still owe $3,368.87... nearly $30 more than if you had stayed with the lower APR card you originally had.

Of course, you can greatly improve this situation by making higher payments. Pay $200 a month throughout, and the 0% APR card goes to $679.71 at the end of 2 years... almost paid off. The original card is also in good shape, at $812.54, but you've paid significantly more in interest.

So think about your payment habits beforehand.

3. Increasing Your Limit

This is one of those little things credit card companies do to try and get you to spend more money. They know that many people consider their credit card limit to be a part of their available money, and so an increased limit is a license to spend more.

Don't.

Most 0% APR cards do that for balance transfers only, not purchases. While you're paying down the transfer amount, the rest is steadily increasing. If this rate is higher than your old credit card had, you're paying out more.

So just ignore that increased limit and do your best to keep your spending habits under control. This is not an easy thing for most people, but it's probably the most important financial skill you can pick up.
About the Author
Stephanie Foster blogs at http://credit-blog.findcreditonline.com/ on using credit wisely. She offers a selection of 0% APR credit cards at her site.
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