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Should I Close My 0% Interest Credit Card After I Pay it Off?

Jan. 5, 2015
Credit Card Basics, Credit Cards
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A 0% interest credit card is a great tool to help you pay down debt without accruing interest in the meantime. Most offer a zero annual percentage rate (APR) for an introductory period that lasts between 6 and 18 months. If you can transfer your credit card balances to the 0 APR card and pay them off before the introductory period ends, you’ll save hundreds or thousands of dollars in interest.

But even after you pay off your credit card debt, you might want to wait before closing your 0% interest card in order to maintain your credit score and help finance future purchases and unexpected costs. If you do decide to keep your account open, be aware that a higher APR will kick in after the introductory period ends, and if you carry a balance, you’ll have to pay interest on it.

Credit score

Closing any credit card can hurt your credit score because it typically increases your credit utilization ratio. Otherwise known as a balance-to-limit ratio, your credit utilization ratio reflects your total debt owed as compared to your credit limit. This number contributes to the 30% of your FICO score that’s affected by the amounts you owe on your credit cards. A low utilization ratio helps keep your credit score high.

» MORE: How to pay off debt

Other benefits of 0% interest cards.

Even though zero interest cards are primarily used for paying off debt, they have other benefits, too, as long as the interest-free introductory period still lasts. For example, if you’re planning a major purchase such as a kitchen appliance or a new television, a card with 0% APR can give you time to pay it off gradually interest-free. Cards with zero interest can also be used in place of an emergency savings fund to finance unforeseen home repairs or an unexpected trip to the hospital. Finally, some zero interest cards even offer rewards when you use them to buy gas or groceries.

If the introductory period runs out and you still carry a balance on the card, you might consider transferring that balance to another low-interest or zero interest card. This will save you money in interest, but your credit score could take a hit. Opening many new accounts in a short amount of time has an impact on your score.

The bottom line: Just because you finish paying off your credit card debt with a 0% interest card doesn’t mean you have to close the card immediately. There are benefits to keeping the account open, including maintaining your credit score and financing major purchases. However, the zero interest rate is temporary, so be prepared for higher interest rates after the introductory period ends.

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