Interest Free Credit Cards - Important Factors To Consider

Managing your credit is hard enough without all the confusing interest rates.  Between introductory rates and changing rate terms for cash advances versus purchases, you can sometimes find yourself in a credit quagmire.  You can avoid some of the confusion and a whole lot of the cost if you start employing interest free credit cards.

What are interest free credit cards?

Interest free credit cards are exactly what they sound like:  they are basically credit cards that don’t charge any interest.  While this approach seems “to good to be true,” these types of instruments can be useful for the savvy money manager.

What kinds of interest free credit cards are offered?

As a recent article from MarketWatch.com notes, there are generally three different types of interest free credit cards:

• 0% on all purchases for a specified period of time.
• 0% on all transfers during a specified period of time.
• 0% on all transfers and purchases during a specified period of time. Quoted from MarketWatch.com

You’ll notice that the common denominating factor here is “for a specified period of time.”  It is important to understand that interest free credit cards do not stay interest free forever.  In fact, this is the main reason why people run in to trouble with these cards.  Once the grace period has passed, interest rates can rise dramatically,

What is the best way to utilize interest free credit cards?

In a word, carefully.  These types of cards can be very useful if you need to “float” some expenses for a short time.  For example, some people find that around the holidays it can be useful to have an extra month or two to pay off gift expenses.  In general, interest free credit cards are not useful for long term balances because the interest rates tend to rise to unfavorably high levels after the initial grace period.

What Should I Avoid?

For any interest free credit card offer you will want to carefully review the fine print.  Some of the things to look out for include:

• Fees or transfer charges:  Sometimes, a bank may offer a no interest card but will charge a hefty fee for you to transfer balances from other high interest cards.  Do the math to figure out if you’ll actually wind up paying more in fees than in interest.
• Late payment fees and penalties:  Many cards offer “interest free credit” until you miss a payment:  then the issuer loads back all the back interest as well as late payment fees.   Be sure you understand what the payment penalties are for any offer you’re considering.

Can I Make Money Using Interest Free Credit Cards?

Actually, this is one of the most creative ways to get the things you want, manage your cash flow and make a little extra on the side.  Imagine walking in to an electronics store and buying a computer for $2,500.  The store offers a “1 year no interest, no fees” credit card.  If you have the discipline to put the $2,500 you would have used on the computer into a savings account, go ahead and take the interest free deal.  At the end of the year, if you leave your $2,500 in the account, you can take it out, pay off your balance and have an extra $125 to play with!

In short, if used carefully, interest free credit cards can be a useful cash flow management tool – but always read the fine print!