Are 0% Introductory Rate Credit Card Offers Worth It?
Last week, I received a credit card offer in the mail with a 0% balance transfer option for 21 months. Since I’m always on the lookout for ways to save money, my mind immediately started spinning trying to find a way to take advantage of the offer. Looking through our monthly budget spreadsheet, my eyes gravitated towards the personal loan we have through our local bank.
But would transferring our personal loan balance to a new credit card with a zero percent introductory interest rate really save us money?
Our first impression was that it must save us money since the 7.99% interest rate on the personal loan is higher than the 0% introductory interest rate. But, the more read read about the terms, we knew we would have to do a little more homework before transferring the balance.
Balance Transfer Terms
- Balance Transfer Fee: A 3% fee is applied to all balance transfers. By transferring the $3000 balance of our personal loan, we would pay a fee of $90.
- Must Pay In Full: Any balance that remains at the end of the 21 month introductory period would be charged 12.99% interest on the outstanding balance from the time the balance was transferred.
Note: Pay special attention to the above statement. If a balance remains at the end of the introductory period, the interest rated doesn’t just go up to 12.99%, we would be charged 12.99% interest on the remaining balance for the entire 21 month period as well!
Comparison
The interest charged on our personal loan is much like a credit card. We currently have 13 more payments of $250.31 on this personal loan to pay it off. Using an online calculator, I determined we would pay $137 in interest.
Instead of paying $137 in interest, we would pay a one time $90 balance transfer fee netting us a savings of $47.
Advantages
- Saving Interest: While the amount saved wouldn’t be huge, saving money is saving money. Also, our personal loan isn’t a great example because we’re near the end of the loan term, and loans usually have the interest payment loaded up heavily on the front end of the loan.
- Extend the Term: If we needed to free up funds in our monthly budget, we could reduce our payment to $142.86 per month for the full 21 months and still pay off the balance with no extra fees incurred. That would put about $108 back into our pockets each month and give us more flexibility with our monthly budget.
Credit cards with zero percent introductory rates can be taken advantage of to save money, provide flexibility with your monthly budget, or both. But, it’s important to read the terms of the offer and do the math to ensure it’s really going to be the right choice.
Image courtesy of Mister GC at FreeDigitalPhotos.net
Have you ever taken advantage of a zero percent introductory rate credit card? Did you do the math to figure out how much it would save you?
Brought to you courtesy of Brock
Brock is a software engineer by day and personal finance blogger at night. He is a fitness junkie and enjoys grilling and smoking meat. Married with two children, Brock strives to improve his skills as a husband and father, and is always on the lookout to stretch his family’s budget as far as he can.
Thanks for explaining that you should always take into consideration the term of the offer and ensure it would be the right choice! Great information.
That’s a pretty rare condition for 0% transfers. We used some introductory rates when we had debt from medical bills. It was part of getting a rewards card anyway, so it was a bonus.
Still, the lesson is good: Always read the terms veeeeery carefully. I’ve heard of the retroactive interest rate being popular with those furniture store deals always being offered.
We did take one place up on that — but only because we knew we could pay it off within three months.
@Lauren – Thanks, glad you liked the post. 0% interest rate introductory periods are touted as great deals….but it’s possible there are scenarios where it wouldn’t be – always do the analysis!
@Abigail – exactly – don’t signup for ANY agreement until you know exactly what you’re getting into!