0% APR (annual percentage rate) Credit Cards are a great thing to have in your wallet. If you a looking to buy that big 72″ flat screen TV, or just to get you through the next pay check, the 0% APR credit cards are there for you. Today we will discuss the 0% APR credit cards and if it should be the right option for you.
What you should keep in mind
As a borrower
When you borrow money from the bank, or use your credit cards you may be charged interest. The interest charged to you is going to be called the APR. In the terms and conditions of every credit card it displays the rate that you will be charged. Even though you applied for a credit card that had a 0% interest, there is only a certain amount of time that this intro period lasts. Once this period is over be sure to check what the charges will be.
For example, if your interest was an APR of 10% and you took out a $1000 loan. Your interest due will be $100 (this will get a little more complicated when we discuss APY and compounded daily) . The APR as a borrower is the amount above your loan that you will be paying.
Every time you purchase something on your credit card it is a small loan from the bank. The term of the loan is for 30 days. 0% credit cards allow you to keep the term for a longer period.
If you are a person who does not budget well, or you find yourself being a compulsive shopper it may be smart to stay away from the inciting 0% credit cards. These credit cards make the sky the limit. People buy what they don’t need, or what they can’t afford with the mindset of “I’ll pay for it later”, “I’ll figure it out when the bill comes”. But when the bills comes for $20,000 then you start to get nervous. Be smart, know if you are able to control yourself with a 0% credit card.
If it is a 0% interest why is there a minimum due?
Even though you are getting a 0% term from the bank, there still is a minimum payment that you are obligated to pay the bank. If you miss these payments you will ruin your credit. The 0% is only on the balance after the minimum due.
Does it make a difference if I pay or not?
Yes, your Credit Utilization (read more about this on our informative post on credit scores). By not paying off your credit car bill you will be carrying a balance on your credit cards. When you have a balance on your cards, your credit portfolio has a revolving utilization (I made up that term).
Credit Utilization is how much of your credit line you are using. If you have one card with a $1000 credit line, and you spent $500, you have used 50% of your credit. The lower percentage of credit you are using, the better off you are. The total credit is calculated by all your cards credit line vs all purchases. If you have 5 cards with a credit line of $1000, and made the same $500 purchase, your CU (credit utilization) would drop to only 10%. Never go above 30%, and a credit utilization of under 9% are the best.
When someone is using a large portion of their credit, they are “dependent” on their credit. Banks don’t like that, especially if you are applying for a new card. It makes you look like a compulsive shopper, and a credit risk.
Having a 0% credit card can do wonders! However one must weigh the risks involved before applying. A 0% APR card is the easiest way to accumulate debt, and run a risk of bankruptcy.
Why are we scaring you away from applying?
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Weigh the benefits vs risks before applying for a 0% APR Credit Card Offer.