An interest free credit card sounds great, does it not? Imagine being able to make purchases with your credit card, pay off your balance whenever you would like to without having to pay back any money in interest whatsoever. There are a lot of misconceptions when it comes to interest free credit cards. The average credit card holder does not know how to get an interest free credit card or if they even exist, here is a brief guide:
It is possible to obtain a credit card that charges you no interest on your purchases, but you cannot expect to live in “no interest land” for long. There are hundreds of different credit cards available and 5-7 respected, trusted credit card companies that operate here in the US, so there is plenty of competition amongst credit card companies. To attract customers credit card companies often offer a very low introductory rate, or no APR whatsoever for a limited period of time. The introductory rate will usually last between 3 months and 24 months but 6-12 months is average. For example, the Discover More card offers its card holders 0% APR on balance transfers and purchases for the first 12 months you own the card.
Simply put, if you receive the card April 1st of 2011, you will not pay any money in interest on your balance until April 1st of 2012. On April 1st, 2012 your balance will be subjected towards whatever the normal interest rate for the card is, usually somewhere between 10-20%. You have managed to make purchases on credit while paying no interest for a full year and Discover in this case has picked up another customer. Both parties win in this situation, which is why credit card companies with an introductory rate are beginning to become so popular.
There are two real things you need to look out for if you obtain a no interest credit card. It is easy to get caught up in the “no-interest” frenzy of spending. You can go to the department store, see something on sale and decide to buy it because you have a no interest card. This is dangerous and not good for your financial health. It is obviously better to not pay interest on your purchases versus having to pay 15% APR or more, but it is better to save, be frugal, and only buy things that you need versus buying items that you can live without. The average American saves less than 5% of his/her income that number needs to rise to more like 15-20% if people ever want to retire comfortably.
Another thing to remember is that you will have to pay interest on your purchases eventually. Let’s continue with the Discover more card example, you will not have to pay interest for 12 months, but a year flies by pretty quickly. If you still have a balance after a years’ time you will have to pay interest on it, Discover and other credit card issuers are not charities, they are in business to make money just like everyone else. This may not seem like a big deal, but you will end up paying an arm and a leg in interest if your balance is substantial, over a few hundred dollars. It is tough enough to get ahead financially these days without “donating” hundreds or thousands of dollars in interest payments to credit card companies over the course of years.
After your introductory interest rate is up with one credit card you can always apply for another and enjoy its low to no APR during their intro period. It is feasible that you could end up never paying interest on your credit card purchases if you stay on top of things. You need to know exactly when the introductory rate on your cards expire and be diligent about paying off your balance before interest has a chance to accumulate. This may be “gaming the system” but are you really going to complain about paying no interest on your credit card purchases versus a 15-20%+ APR?