Beware of Zero Percent Credit Cards

Okay, so the economy has taken a big body blow and banks and credit card companies are scrambling to figure out how to stay in business without going down for the count. They’re all operating in a new fiscal landscape that hasn’t quite defined itself yet and so they’re making changes to see what works and what doesn’t. But if things are changing so much, why am I still getting zero percent credit card offers in the mail?

The rational answer to that question is: “I must still be getting them because they still work for the banks.” And that’s a little bit scary because zero interest credit cards can be a huge credit trap if you’re not careful. Remember that old saying about “if something looks too good to be true it probably is?” Well, you could easily apply that to zero percent interest cards.

The Hook

I’ll admit it, these cards look great! I mean what an opportunity, right? You can move a chunk of your other credit card debt (that you’re paying a high interest rate on) over to a new zero interest card and voila, you’re stylin’ major lower payments. Are you smart or what?

All you have to do is keep making your payments on time and you keep the low rate. Maybe, you’ll even start making larger payments (because you can afford to now) and take a shot at reducing or eliminating this credit card debt altogether. You’re so lucky the kindly credit card company is helping me out.

Well, the reality of the situation is that the kindly credit card company is making you an offer that generally benefits them, not you. Oh sure, lots of people have been able to move their debt around and clear some or all of it up in this way but many, many more have ended up deeper in debt than when they began. Here’s why

Look Before You Leap

If you read the fine print you’ll see that there’s no guarantee that you’ll ever truly receive a zero percent card. That interest rate is available solely at the discretion of the credit card company. So if they don’t like something in your credit record they’ll offer you something more than a 0 APR.

Your credit history might also be in good shape and you still won’t get the zero interest. The company may decide that you don’t have enough credit card debt to transfer to make it worth their while. The simple fact is that the credit card company doesn’t really need a reason to make the switch, they just can and they don’t have to tell you why.

Let’s not forget the time-frame on the offer either. These types of offers come with a countdown. They last only a certain number of months and then your interest rate jumps to whatever the market will bear. Sometimes that rate is higher than your previous card’s rate too.

The Plot Thickens

Let’s say that you’ve considered all of the above and you still think a zero interest credit card is the right choice for you. Okay, that’s fine, you’re an adult; just be prepared to watch your back.

For instance, that low interest rate probably only applies to the balance you’ve transferred. So anything new you charge on the new card will have a different “nominal” rate. That will raise your minimum payment too and maybe put you back on the road to more debt.

Then there’s the payment due date. Make sure to carefully monitor when your payment is due and have that payment in the credit card company’s hands before it’s truly due (say at least a day of two before). You don’t want to be late by even one minute because it will probably be enough cause for the bank to withdraw your great introductory rate and replace it with something not-so-great.

And please don’t flirt with your credit balance limit. By that I mean don’t allow your balance to creep even close to that limit; that’s just asking for trouble. If you get too close and the bank processes your monthly payment and charges in an order you weren’t prepared for, you might exceed your limit. Even one time might be enough for the bank to raise that rate and again you’d be back in the same credit hole you started from.

Been There, Done That

I’m speaking from experience when I say these cards are a trap for a lot of people. Accept for a moment that certain spending behaviors and habits led to most people getting into deep credit card debt in the first place. If you can do that then you can see that switching to a zero percent credit card does nothing to change those behaviors or habits. And so it follows that these cards are really an opportunity for even greater debt and financial trouble and not really the lifeline they’re advertised to be.

The habits have to change before the debt can change. Otherwise there will be no lasting change at all. So if you receive one of these zero percent credit card offers in the mail use it as a reminder to keep changing your spending habits, to keep lowering your debt, and to keep making wise decisions. And then throw the darn thing away.