You may receive credit card offers in the mail touting interest-free introductory periods. Often, these are legitimate offers that, if used correctly, will provide you with a plethora of options for borrowing money without incurring interest charges. There is no magic involved in using credit cards for no-interest loans, but you must exercise caution when learning how to use credit cards for no-interest loans. Before you sign up for a credit card, you should carefully read the terms and conditions.
Part 1 Locating a Credit Card to Use
1. Determine the amount of money you need to borrow. This is to ensure that when you select a credit card with a no-interest loan offer, you find one with the credit line you require. This sum can be used to finance a home improvement project, repay immediate debts, or for any other short-term purpose. Just make sure it’s an amount you can afford to repay in a reasonable amount of time (less than one year, in most cases).
2. Investigate the various offers that are available. This can assist you in selecting the best offer with the best terms and conditions. Keep an eye out for credit card offers that have a variety of variables that affect the quality of the offer. When looking for offers, rather than applying for them directly, try using a website dedicated to comparing these offers. This is because every time a lender checks your credit report to see if you qualify, it can lower your credit score.
Look for a zero-interest period that is long enough, a high enough limit, a good rewards programme, and a low APR that begins after the zero-interest period. This way, you can keep using the card after the introductory period expires.
3. Determine the length of the payback period associated with the credit card company’s no-interest offer. A no-interest offer will not be prudent if it has an interest-free period of 6 months when your financial constraints require you to repay the loan in 12 months.
Depending on the issuer, your specific card, and your credit score, offers can last anywhere from 6 to 24 months.
4. Make certain you are aware of your current credit score. The majority of no-interest offers require a credit score of 700 or higher. Many legitimate companies will charge you for your credit score, but consumers should be aware that they are entitled to a free credit report and credit score once per year.
If you receive an offer for a credit card with no interest rate in the mail, it does not necessarily mean you will qualify for that card.
Annualcreditreport.com can provide you with a free credit report.
Part 2 Paying Back Your Loan
1. Pay the bare minimum on time and in full. If you miss a monthly payment or do not make the minimum payment required by the bank, you will not only be charged late fees and reoccurring interest, but you may also lose the no-interest offer from that point forward. Your cardholder agreement will include this information.
2. Make certain that the money you borrow is in accordance with the terms of the offer. If the interest-free period is extended only for balance transfers, purchases made with this card will not be eligible for the no-interest offer and will be subject to the bank’s standard terms and conditions. In other cases, the 0% APR may only apply to purchases and not balance transfers, cash advances, or bank charges. Make sure to carefully read the fine print of your cardholder agreement.
3. Pay off your loan before the interest-free period expires. If you still have a balance on your credit card account at the end of the promotional period, the lender will begin charging you interest on that balance. This interest will be charged at the stated rate on the card, which could be nearly 30%!
Because your lender is not required to notify you when the interest-free period ends, set up calendar alerts to help you remember.
4. Keep an eye out for deferred interest. Deferred interest is interest that is accrued by your account balance but not charged to you during your interest-free period. If you pay off your entire balance before the end of the grace period, you will never be charged deferred interest. If you still have a balance at the end, you may be required to pay this interest, which would have the same effect as if you had never had the interest-free offer on the card (in other words, it charges you for all of the interest you thought you were free of).
For example, if you borrowed $1,000 on a credit card with 0% interest for a year and always made the minimum payment of $20 each month, you’d have a balance of $760 at the end of the year.
Because you have a balance, you will be charged deferred interest, which will be calculated based on the stated rate on the card. A 22.9 percent interest rate, for example, would give you $205 in deferred interest, bringing your total balance to $965.
Deferred interest is not available on all cards; check your cardholder agreement for more information.
Part 3 Reducing Debt
1. Debt consolidation is the process of combining all of your debts into a single payment. Many credit cards allow you to transfer your other debts to that credit card by paying the balance of your other debt with the credit card. The credit card would then be paid off. You can save a significant amount of money in interest by using a zero-interest credit card to do so, as well as consolidate your debt payments to one account, simplifying your life. However, unless your credit card specifically waives transfer fees, you will be charged a transfer fee for doing so.
A typical transfer fee is 3%, so transferring a $5,000 balance would cost you $150.
When transferring balances, make sure not to use your entire credit limit. This would cause your credit utilisation ratio (how much credit you use versus how much credit you qualify for) to skyrocket, negatively impacting your credit score.
2. Pay off other credit card balances with your card. You might even be able to pay off your other credit cards with your zero-interest credit card. When you transfer your balance, you effectively stop accruing interest on your first card balance and can then begin using the money you were paying in interest to help pay down the balance.
3. Pay back your student loans. You can even use your 0% credit card to transfer a portion of your student loan balance. This could save you a lot of money on interest if you can make the payments before your card’s interest rate rises. However, there are some drawbacks: if your credit card interest rate rises before you repay the transferred balance, you will be stuck paying a much higher interest rate than you were paying on your student loans in the first place.
If you transfer your balance to a credit card, you will no longer be able to deduct student loan interest from your taxes.
You also lose the repayment flexibility provided by qualified student loans. This means that if your financial situation worsens, you will be unable to adjust your payments.
Furthermore, you will no longer be eligible for student loan forgiveness for the transferred balance.
4. Don’t expect to be able to transfer your balance to a new card. You will most likely be able to transfer your balances to a no-interest credit card only once. This is because carrying large amounts of debt on this credit card will lower your credit score, making you ineligible for another zero-interest, introductory credit card deal. As a result, only charge as much as you can pay off before the introductory period expires.
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