0 percent Balance Transfer and 0 percent Purchase Rate Credit Cards

It sounds like an offer thats just too good to be true. You pay 0% interest on any purchases you make with your credit card and you also pay 0% interest on balance transfers.

The temptation here would be to transfer over your outstanding balances from your old credit card accounts. Those would be charging you more than 16% interest on your balances, so you immediately save money going down to 0% on your debts.

Then you go and purchase those things you really need, knowing that you get to pay zero interest on them. This gives you time to pay off the money you spent without paying huge interest charges.

Unfortunately, while it sounds great when its worded that way, the reality is far different.

Whats the Catch with 0% Purchase and Balance Transfer Cards?

Those zero per cent offers usually tend to extend for around six months. This means that the introductory rate will expire and it reverts back to whatever the standard interest rate is for that account.

Yet you still have the benefit of that initial six months where no interest is charged on the purchases you make. If you intend to head out and buy a new refrigerator for $1,500 and you pay for this on your credit card, you have six months to pay this off without any charges applying. Thats easy. You simply need to pay back $250 per month to make sure you still get the 0% deal.

The catch comes when you combine transaction types on the same card. Lets assume that you have an old credit card that is charging you 16.5% on your debt and you owe $1,500 on that debt. You transfer that balance over to your new card and you get the 0% balance transfer offer for six months.

Now lets assume that you head out and buy new refrigerator as well, also for $1,500. This purchase amount gets the 0% offer for six months as well.

At the end of that introductory period, how much do you realistically think you will still have owing on your account balance? Youve stacked $3,000 onto the card so far and youve paid no interest for the first 6 months. If you hope to pay it all off before the higher rate kicks in, you need to pay $500 per month to clear that debt.

Once that initial special offer runs out, your interest rate will go back up to a much higher amount. If you still have a balance outstanding, this leaves you with high charges accumulating every month and a large debt to pay off.

How to Take Advantage of 0% Offers

The only real way to take advantage of paying zero per cent interest is to ensure that you dont get caught paying the higher amount again at the end. This means doing some simple sums that show you how much you can afford to pay off before the special offer ends.

For example: if you owe $600 on your credit card you need to pay off $100 per month to clear that debt before the 0% expires and the high rates set in on your account again.

The same is true with purchase offers. If you know youre only going to have six months where there is 0%, you need to be sure you can pay off the amount you spent before that time runs out.

Balance transfer credit cards really can offer an excellent way to reduce your debts, but its really important you dont get caught. Banks know that people get tempted to pay for other things on their card. Some even withdraw cash from ATMs using their credit cards. The banks rely on you doing this so they can keep making a profit.

If youre serious about reducing debt, try to keep your balance transfer card only for its intended purpose. Youll save money in the long run and you wont be adding to your debt levels.

Sam Jones, the author, has been looking into 0 balance transfer credit cards on uSwitch.com and thinks there are a lot great options if you want to be able to manage your finances moer effectively.

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