Ask the Experts - 0% APR Credit Cards

Mon, Feb 13, 2017 -- (View the original WalletHub article.)


UNT Student Money Management Center Director Paul Goebel discusses the pros and cons of 0% APR credit cards. 

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Paul Goebel

Director of the Student Money Management Center at University of North Texas

  Why do banks offer 0% credit cards? I believe banks offer 0% credit cards as a way to entice new customers. While customers benefit from using the cards interest-free during a defined introductory period, I would imagine banks are hoping customers will continue to use the cards after the introductory periods end. Continued use will often lead to rollover balances that are then hit by the cards’ regular annual percentage rates, which can easily be in the double digits. Are 0% credit cards a trap? I do not believe 0% credit cards are traps. They are financial products that come with terms and conditions. As with any financial service or product, my best advice to students and others is “buyer beware.” What types of expenses should a 0% credit card be used for, and vice versa? When using a 0% credit card, customers need to think strategically and view their purchasing behaviors when using the card with intentionality. Introductory periods will end. Using interest-free payments to one’s advantage, all transfers/purchases need to be paid in full before the introductory period ends. Using the card after the introductory period ends should be seen as a completely different card, since the card’s regular annual percentage rate is now applicable. As such, a 0% card can be used for any type of expenses as long as the cardholder does not carry a balance beyond the introductory period. Banks begin to profit once the introductory period ends only if an account has a balance. Consumers should remember that any credit card is simply a short-term loan. As with any loan, any unpaid balance will fall victim to applicable interest rates. As I mentioned previously, many 0% credit cards roll into double-digit interest rates once the introductory period ends. I cannot stress enough the best advice for any credit card offer – buyer beware. How much is a 0% intro rate worth to a consumer? And how does the length of that intro term affect the value? Depends. Some consumers will use the 0% period to help pay off debt that previously had significant interest rates. Others will use the cards to make purchases under the 0% benefit. In both cases, the 0% rate will only be a benefit if all purchases/transfers are paid in full before the introductory offer ends. Are 0% credit cards immoral because they encourage debt? I do not believe that credit cards are inherently immoral. They are a financial tool. Like any tool, if a person does not know how to operate it, they can easily get into trouble. Consumers need to understand and know all terms and conditions before applying for and using any credit card – regardless of any special introductory offers. Are 0% credit cards to blame for rising credit card debt levels? I do not believe 0% credit cards are solely to blame for rising credit card debt levels. Rising credit card debt levels are the result of many contributing factors. I found the following quote relevant to this question in the Average Credit Card Debt in America: 2016 Facts & Figures Report that you may find of interest: “…credit card debt in America has been rising over the last decade. However, despite this, the average percentage of people holding credit card debt has been gradually decreasing. This tells us that while average credit card debt is increasing, it’s not due to a greater number of individuals spending. Instead, in recent years, more people have been more heavily indebted.”