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Pros and Cons of Using 0% APR Credit Cards for Purchases

A 0 percent APR credit card can help you buy big stuff — a new appliance, furniture, or the trip of a lifetime — without paying a cent of interest. What’s the catch? Learn to decide how and when to use these offers and when to stay far, far away.


0 percent APR credit cards can help you pay for big purchases over time if you're careful. Photo: Flickr/401(K) 2012.I was chatting with a friend the other week who mentioned he was thinking about getting a new credit card – one with a 0 percent APR on purchases for over a year – to finance a couple of home improvement projects he had coming up.

Pros of making purchases with 0 percent credit cards

Obviously, his thinking was “I’ll buy everything I need on the card and pay it off before the 0 percent APR runs out.”

Played right, the transaction wouldn’t cost him a dime. In fact, by investing the money he would’ve used to make these purchases, he will earn interest instead of paying it.

And, as some credit cards offer both a 0 percent teaser rate and a bonus for spending X amount on the card in the first few months, he might profit even more handsomely on the whole thing.

Cons of making purchases with 0 percent credit cards

Obviously, however, this strategy is not without risk.

There’s the chance he’ll have trouble making payments and actually not be able to pay the card off before the 0 percent period comes to an end, costing him interest.

There are also credit implications: applying for a new credit card and adding a balance to that card both may negatively impact your credit score. Finally, there’s simply the headache of carrying debt. Even at 0 percent, debt is debt – it’s no fun to owe someone money.

Are you in a position to use these cards?

Here’s my advice on getting a zero percent credit card to finance a big-ticket purchase like furniture, an appliance, or medical bills.

If you have no other credit card debt, a solid credit score, and several months of emergency savings: Go for it, there’s little downside.

If you have no other credit card debt but are trying to improve your credit score or you don’t have much or any cash saved in the bank, think twice.

Applying for new credit and then adding to your debt load will retard any progress you’re making on improving your credit. And if you don’t have a cushion of savings in the bank, taking on debt – even at 0 percent – is a risk that I don’t recommend. If unexpected expenses come up you’ll be stuck choosing between paying the expense or making the credit card payment.

Think carefully about what you use the card for

Personal finance is personal, so I’m not going to judge anyone who tells me they used a 0 percent credit card for a European vacation (after all, I tend to agree that if you have the opportunity to travel while you’re young, you should take it at almost any cost). That said, there are some things that may be better going into debt for than others.

You may hear people talk about “good debt” and “bad” debt. They’ll say “good” debt includes things like a mortgage or a student loan, whereas bad debt is credit card debt or an auto loan. But that distinction is overly simplistic.

First of all, I think debt can be all bad, but even so-called good debt has its downsides. For example, I have a mortgage on my home at a very competitive interest rate, which many people would say is perfectly acceptable debt, but it’s still a financial albatross that keeps me up at night.

Second, it’s easy to imagine how a mortgage could be bad debt if you overreached to buy a property, financed 100 percent of the purchase price, and took a higher interest rate because your credit wasn’t that great. At the same time, paying with a 0 percent APR credit card for a class that lands you a raise at work would be an awfully smart way to use debt.

So if you’re thinking about using a 0% APR credit card for a big purchase, think about what the purchase will be. Is it something that will improve yourself, your earning potential, or the value of your home? Is it a necessary purchase? For example, did your refrigerator die or do you just want a new fridge because you’re tired of the old one? If you can answer yes to the above, you can feel pretty good about using a 0% credit card as a tool for purchasing something interest-free. If not, you may want to reevaluate why you’re willing to make payments on something – even at 0 percent – that’s not entirely necessary.

Choosing a 0 percent APR credit card

If you have a very good to excellent credit score you’ll have access to a number of low interest credit cards, many of which offer 0 percent APR on purchases for a year or longer.

You may want to pay attention to rewards or bonuses, but that should be secondary to how long you’ll need to repay the amount you borrow. The goal is to avoid being caught with a balance when the 0 percent APR runs out.

Two cards to consider for this purpose are the

What do you think? Have you ever used a 0 percent APR credit card to finance a big purchase? Would you? Why or why not?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. I have done this before on numerous occasions. I used to do it and forget to pay it off in time. Now, I do it only if I have the money available, but just want to keep my cash liquid. If you can afford it, then I don’t see any issue. If you are doing it just because it is 0%, then it could cause some headache.

  2. Patel.amit.h@gmail.com says:

    I have done this. Had the money but I wanted my money and all monthly income reinvested in investments and CD’s earning interest. Works great but I would only do it if you are a high earner with low expenses and able to make investments liquid quickly as possible. Worked out well this with the market being up 30% and all. But have a back up means of paying it off. I had CDs maturing often so even if i lost my job I would be able to pay it off plus my emergency fund.