0% APR Credit Cards Savings

Photo of a savings jarOne of the most common reasons you might consider transferring your existing credit card balance to a new card might be to take advantage of introductory interest rates.

It’s not unusual for competing card issuers to tempt you with 0% APR on balance transfers for 6 months, and sometimes even up to 18 months! If you’re determined to get rid of old credit card debt once and for all, this can be a wonderful opportunity to clear your balance at a much lower cost.

There are a few things to watch out for, however:

  • New purchases may still be charged at the standard APR, and may continue to accrue interest until the original balance transfer amount has been paid off in full.
  • When the introductory rate is over, will you be paying a higher interest rate than you’re currently paying? Don’t be tempted by short term gains if the long term cost is too great.
  • Is there a balance transfer fee, or any other fees in excess of what your current card charges? Make sure they don’t cancel out any savings you might make.

Before you take the first 0% APR offer you get, think about why you’d want to take advantage of such an offer. The best reason is to give yourself a better opportunity to clear the high-interest debt on your current credit card, and before you submit your application, make sure you’re committed to taking this task seriously. Until you have your debt under control, ask yourself if you can be disciplined enough to avoid making new purchases on your new credit card.

Taking the plunge

If you’ve weighed up the options, and decided to take advantage of a 0% APR balance transfer to another credit card, are there really significant savings available? To answer that, let’s look at an example:

  • Assume you transfer $1,000 to a new credit card that offers a 0% APR introductory rate for 6 months, after which it goes up to 15% (the same rate as your old card in this example).
  • Pay off $100 per month, and make no new purchases.
  • For simplicity, there are no transfer fees involved.

The table below shows the difference between your new card and your old:

Balance (new card) Payments 0% APR 15% APR
1,000.00 0.00 0.00 0.00
900.00 100.00 0.00 12.06
800.00 100.00 0.00 10.88
700.00 100.00 0.00 9.68
600.00 100.00 0.00 8.47
500.00 100.00 0.00 7.25
400.00 100.00 0.00 6.01
304.02 100.00 4.02 4.75
206.75 100.00 2.73 3.47
108.18 100.00 1.43 2.18
8.29 100.00 0.11 0.87
0.00 8.29 0.00 0.00
TOTALS: 1008.29 8.29 65.61

As you can see, after 11 months, your balance has been completely cleared, but with your old card, it would have cost you 8 times more in interest! If there were transfer fees involved, and if they amounted to less than $57 (or 5.7% of the transfer amount), then you would have still made a saving.

Of course, this example just shows one simple case, and depending on other factors (monthly repayment amounts, length of introductory rate, fees, etc), your mileage may vary. However, it does illustrate that credit card balance transfers with a 0% APR introductory rate can help you clear your debt faster!

Image Credit: stock.xchng

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