Advertiser Disclosure

When Should You Consider a 0% Interest Credit Card?

Feb. 2, 2015
Credit Cards
0% interest credit card
At NerdWallet, we strive to help you make financial decisions with confidence. To do this, many or all of the products featured here are from our partners. However, this doesn’t influence our evaluations. Our opinions are our own.

It may come as a shock to find out that some credit cards don’t charge interest—well, they don’t at first. A 0% interest credit card starts out with this perk, but after 12 to 18 months, your honeymoon with this card will be over. However, that doesn’t mean it’s a bad idea to get this type of card. Here are a few scenarios where it can help you.

1. You need to pay for a big, short-term expense.

If you’re short on cash and have to pay for an expensive flight or an unexpected medical expense, this card can act as a yearlong personal loan. This will work in your favor as long as you can pay off the full balance by the time the card loses its introductory rate. Otherwise, you might have to pay interest on the remaining balance.

2. You want to consolidate debts.

Combining your debts under one card can be a good idea, especially if you’re paying any variable interest rates or juggling several payment deadlines throughout the month. With a 0% card, you’ll be able to get a fresh start and pay without interest for a time—but remember that a balance transfer typically comes with a charge of 3% of each balance you move onto the new card. Be sure this is the right move for you; if you’re planning to pay off a balance within just a few months, for example, the transfer fee may outweigh any interest you’d save.

3. You have debt and a low credit limit.

Some cards will help you pay off debt more easily than others. If you’re stuck with a low credit limit, let’s say $5,000, and the 0% card you’re eyeing has a limit of $10,000, you may want to consider applying for it. Once your debt is transferred to the new card, that higher limit will help lower your utilization ratio, which is a factor that goes into your credit score. The closer that rate is to 30% or less of your total credit, the more likely it is that your score will improve.

Using the promotional period of a 0% interest card is your chance to gain back a sense of financial empowerment, especially if you’ve been dealing with debt for a while. Treat this as a short-term tool instead of a reward, though. After all, the 0% interest rate is temporary, and your reliance upon it should be as well.

Image via iStock.