Zero Percent Credit Cards: Do They Really Work?

Zero percent credit cards have been popular with consumers because the consumer can take advantage and not pay interest on credit purchases for the period given in the terms and conditions of the offer. The idea is a smart marketing plan on the part of credit card companies who want people to use their credit cards. Often times when someone opens a new credit card account that person will continue using the account even after the introductory offer.

Because there is typically a high rate of interest attached to credit card spending, people tend to shy away from using these cards. So credit card companies have been encouraging people to make use of the 0 percent credit card either for new purchases or for balance transfers. The companies will often encourage people to transfer balances from cards with higher interest rates to their zero percent credit cards.

How does the credit card company benefit from zero percent credit cards? Usually the zero percent offer on balance transfers and purchases is for a certain period, also known as an "introductory" or "promotional period" which can be between six months and one year. After that initial set period the higher interest rate or APR is applicable. Though the consumer will be tempted by the 0 percent offer, he or she still needs to be still cautious about credit card spending. It's always important to make sure the debt is repaid on time, before the promotional period has ended if you want to take full advantage of the zero percent interest offer.

Credit card companies are able to provide the zero percent interest rate offers because they know they will still make money through things like annual fees and transaction fees for services like balance transfers. Also, if the card holder does not settle the debt before the introductory period he or she will likely end up paying a higher amount of money in the form of interest payments, late fees, penalty for late fees, over-the–limit fees etc. Remember, the zero percent interest rate will not be valid for cash transactions; those type of transactions always have a high interest rate.

Zero percent interest credit cards can be useful to customers, provided the consumer uses it wisely and understands the agreement.  If you decide to take advantage of the offer and transfer balances or make any credit purchases during the interest free period it's important to understand the terms of the offer.  With most zero percent credit cards if you do not pay the balance in full before the introductory period, you may end up paying more in the long run if you continue to make purchases with that credit card.

It's also important to understand the details of the card.  For instance when they receive your monthly payment which balance do they apply it to?  If you get a zero percent interest credit card and transfer a balance to take advantage of the zero interest but you don't make any new purchases, the card gives you the chance to pay that balance down (or completely pay it off) without taking on additional interest.  But if you transfer a balance and continue to make purchases, it's likely the zero percent offer either applies to the balance transfer or the new purchases but not to both.  Which one is your monthly payment applied to?  Most of the time it's applied to the balance with the lower interest rate, leaving the higher interest rate balance grow.

Credit card companies are always in competition with each other to get and keep the customer, but things are changing a bit since they are losing so much money in this down economy. While offers for zero percent credit cards are still available they may be harder to find, but they are still available. If you're trying to pay off some debt you may want to try to find one, but use it wisely.

Here is what you need to do to get the maximum benefit as a consumer:

1. When you get a call for a balance transfer with a zero percent interest rate, ask the customer care representative how long the promotional period will last, and if the promotional period of zero percent is for both balance transfer and credit purchases. Do not give your permission on the phone, read over the information on the website or in print. Always read the fine print thoroughly before confirming your acceptance to zero percent interest credit cards.

2. Make the 0 percent interest credit card work for you in the best way possible. If you have a lot of credit cards with high interest rates, you can consolidate all your debts onto one credit card. This will lower your outstanding balances on all these cards considerably and you stand to save a lot of money in interest, late payments and over-the-limit charges, which you may be accruing on the other cards. Make sure the balance transfer fee is less than you would have paid in interest if you hadn't transferred the balance.

3. Compare different credit card offers that talk about the zero percent offer and ask yourself which is the best one for you, not just for short-term gain but over the long-term too.

4. Find out if the introductory rates of zero percent have different expiration dates for balance transfers and credit purchases.

5. Make sure there isn't a minimum amount of purchases that need to be made to maintain the zero percent rate. Some card companies require you to make minimum number or amount of purchases to remain on the zero percent interest rate. If you make purchases you will have a higher balance to pay once the introductory period expires. Avoid taking these types of zero percent interest credit cards.

Do some thorough research before taking the zero percent credit card, and make judicious use of the card so that you are able to manage your money properly. If you use them correctly they can be incredibly beneficial, but if not they may just increase your debt.