Should I Open an Interest-Free Credit Card?

Q: I’m always getting offers for interest-free credit cards and I’m tempted to apply. Is this a good idea?

A: Interest-free credit cards, often referred to as 0% APR cards, can be convenient, but they do carry risks. Let’s take a closer look at these credit cards, their benefits and drawbacks. 

What is an interest-free credit card?

An interest-free credit card will give you a line of credit that can be paid back interest-free. But, this feature applies for a limited intro period. Once that’s over, your credit card balance starts getting interest charges.

What are some reasons to open an interest-free credit card?

An interest-free credit card can be useful in some circumstances. For example, it can help you make large purchases that you can’t pay for in full on the spot. Also, 0% APR cards allow you to move high-interest debt to the new card, which can help you get out of debt faster.

What are some of the drawbacks of interest-free credit cards?

Interest-free credit cards do have disadvantages, including:

• Limited introductory period, lasting six to 21 months. After this period, the APR will increase significantly, often to higher than average rates.

• Potential for debt accumulation. Without the immediate impact of interest charges, you may find yourself creating more debt than you can pay off during the intro period.

• Balance-transfer fees. Many cards charge a fee of 3-5% of the amount transferred. 

Is an interest-free credit card right for me?

If you’re thinking about opening a 0% APR card, first ask yourself these questions:

1. What is my current financial situation?

Consider factors like your monthly income, debt load, savings and more. If you have a lot of high-interest debt, a balance transfer to an interest-free credit card can be beneficial, but only if you pay your bills on time and can do so before the grace period ends.

2. What are the terms and conditions of the card?

What kind of interest rate can you expect after the introductory period ends? Are there fees attached to the card? Once you have this info, ensure you’re getting the interest-free card with the best terms and conditions on the market. 

3. Will I be able to resist the temptation to overspend? 

If you’re a chronic overspender, a new credit card may not be for you — even with an interest-free period. 

4. Is there a better option for me?

Whether you’re opening your interest-free card to fund a large purchase or to transfer high-interest debt, there may be an alternative that better meets your needs. Here are two options to consider:

• Personal Loans-this low-interest loan will give you a longer repayment period and generally has easy eligibility requirements within your own financial institution.

• Home Equity Lines of Credit (HELOC) or Home Equity Loan-if you are a homeowner, these products can give you the funds you need at a fairly low interest rate. 

Is an interest-free credit card for you? Use this guide to find out!