Written by: Cally Worden
‘Credit’ has become a bit of a dirty word of late. Lenders have been lambasted for irresponsibly chucking money at people, with little thought or care for how mounting debts can wreck lives. But hang on a sec – let’s not forget that credit originated as a way of giving people access to cash in advance of them earning or saving it themselves. No-one is forcing people to take it (although granted, circumstances may sometimes make it feel that way). Used responsibly, debt is fine. I’m not saying banks and other lenders are blameless for the debt crisis – but surely there has to be a degree of personal responsibility accorded to borrowing too? This is particularly important where 0% credit cards are concerned.
What is a 0% Credit Card?
0% credit cards are a prime example of how you can make credit work for you. With any borrowing, it’s wise only to take on debts that you really need – this keeps your risk to a minimum. Let’s say you want to buy a football season ticket, or need a new sofa and want to spread the cost. You could take a bank loan, hire purchase arrangement, or use a credit card. If you are confident that you can meet the monthly repayments (unexpected events like redundancy notwithstanding of course), then a 0% credit card is your cheapest option by far. You pay for your item using your card, and the debt balance sits on your account without interest being added. For a specified period of time. Provided you pay it off within that period you effectively have free borrowing.
So Where’s the Catch?
- Always make a payment each month that is at least equal to the minimum required – if you miss one, you will generally lose the 0% deal, interest will start to be added, and you may get stung with a charge too
- Repay the debt in full before the expiry of your 0% deal – otherwise interest will start to be added, and typically at a far higher rate than a normal loan
To avoid being caught out, make sure you diarise the end date of the 0% deal, and take action before it arrives. Setting up a direct debit for monthly payments is the best way to make sure you don’t miss a payment.
What if I haven’t Paid it Off in Time?
If you know you need a bit more time to pay off the debt, start looking in advance for a deal that allows you to transfer your balance to another credit card under a new 0% deal before your expiry date arrives. The same constraints of time and monthly repayment demands will likely apply under a new deal, but this can buy you time. In theory you can keep transferring your balance again and again, but it is wise to try and pay it off as early as possible. You never know when your circumstances may change.
What’s in it for the Lenders?
Lenders are, sadly, not rich benefactors seeking only to help out those less fortunate. They are in business to make money. On the face of it, 0% credit cards seem to offer them no benefit at all. Isn’t that sweet of them? Not really. For every credit-wise borrower who plays the system of 0% cards well there are tens of others who don’t. And it is these unfortunate souls who end up in more debt than they anticipated. Lenders know most people simply aren’t that organised, so while they make no money on a handful of people, they rake it in on interest from others. Sad, but true.
Many cards are offering 0% deals for up to 20 months at present. If you play the system you can indulge in free borrowing at the lender’s expense. But the key word here is ‘IF’ – always remember that anything you borrow will need to be paid back eventually, and it’s easy to become complacent about how smart you are being, and then get caught out by dates or a missed payment. Play smart, and 0% credit cards can work for you, but only be tempted if you know your organisational skills are up to the challenge.