Do 0% APR Credit Cards Really Save You Money?

The Facts Behind the Fine Print

We get them in our mailboxes nearly every day it seems. You know, those credit card offers for 0% APR. What started around 15 years ago as a gimmick promotion, has turned into the most common type of credit card offer. But, do these 0% APR credit cards actually save you much money on your balances? Let's see if we can find the answers.

The best way to save yourself a lot of money with your credit cards each month is to pay off the balance. You'll avoid any finance charges and interest expenses, etc. While this is the ideal way of handling your finances, for many people, they will carry a balance on their credit cards.

For those who do carry a monthly balance, let's take a look at your typical 0% APR credit card offer. I say typical because they can all have differences of course, but the most common will offer a 0% APR on balance transfers for the first 6 months. After that, the interest will go to a certain percentage. In our example, we will use 20%.

Let's say you currently have a $2,000 balance on a Visa card that has a 15% APR. Your interest expense for one full year would be $300. $2,000 X .15 = $300. Now, here is what a 0% APR credit card would look like.
$2000 X 0 (first 6 months) = 0
$2000 X .20 (after introductory rate) = $200

The cost is actually $400, but because it is only 6 months of interest charges you divide it by 2.

So, you have saved yourself $100 in interest charges by switching over to the 0% APR credit card. You could save even more if you carry an even higher balance.

There are some other important credit issues to keep in mind with these offers though.

-If the interest rates of the new 0% APR credit card are substantially higher after the introductory period than your current credit card, then this may not be a good deal for you.

-This offer may be a great short term credit solution, but keep in mind, paying off your monthly account balance should be your ultimate goal.

-Opening new credit card accounts and switching balances numerous times can have a negative effect on your credit report. Be sure to keep this in mind. Lenders look at this activity and raise red flags over the changes all the time.