Zero Interest Rate Credit Card Primer

by Lucy Lazarony

What could be better than a credit card deal with zero-percent interest? An interest-free card deal that lasts and lasts.

The latest round of credit card offers boasts some seriously good terms. If you play your cards right, you could treat yourself to a one-year, interest-free loan.

"It is a great opportunity if you make a concerted effort to get rid of the debt," says Susan Zimmerman, a chartered financial consultant in St. Paul, Minn., and the author of The Power in Your Money Personality.

"Really try to get a disciplined spending and debt repayment plan in place so you can sort of beat them at their own game."

To do so, you'll need to qualify for one of these super-long zero-percent deals, follow the rules to the T and pay off your balance before the teaser rate ends.

"To a certain segment of disciplined consumers, it's a wonderful opportunity," Zimmerman says.

Let's take a closer look at the deals. If you've got good credit, it's been hard to open your mailbox recently without a zero-percent credit card offer falling out.

"The zero percent is a good way to hook somebody," says Howard Dvorkin, president of Consolidated Credit Counseling Services in Fort Lauderdale, Fla.

"All the credit card companies are having a hard time finding good, qualified people to lend money to."

Fierce competition for good credit customers has forced issuers to come up with new ways to sweeten zero-percent deals. The result? Everything from super-long teaser rate periods to zero-percent deals on both purchases and balance transfers and even zero-percent offers on cash advances.

Discover's Platinum MasterCard woos customers with a zero-percent interest rate on purchases and balance transfers for 12 months.

Bank One's Platinum Visa Card promises zero-percent on purchases and transferred balances for 12 months, followed by a 8.9 percent variable interest rate.

MBNA America's Elite Rewards Platinum Plus MasterCard comes with zero-percent teaser rates on cash advances and transferred balances for 12 months.

Pay Attention To The Details

As good as these deals seem, you'll want to pay close attention to the details.

That Elite Rewards Platinum Plus card from MBNA charges a 3-percent fee on transferred balances and cash advance checks. The minimum fee for a transferred balance or cash advance is $10. The maximum fee you'll pay is $75.

Bank One's Platinum Visa Card charges a 3-percent balance transfer fee, capped at $50.

Discover reserves the right to jack up your interest rate if you fall behind on your payment. Pay late even once and a 13.99 percent interest rate snaps into effect. Pay late twice and you'll be stuck paying 19.99 percent on all balances. Forget a third time and it'll jump up to 24.99 percent. Let's not forget about late fees. At Discover, you'll pay $15 to $35 late fees depending on your your card balance.

Before snatching up a zero-percent card offer, be sure to grab a magnifying glass and pour over the fine print. Here are some key questions to ask as you comb through the offer:

• How long does the introductory rate last?
• What is the card's annual percentage rate after a teaser rate expires?
• Does the teaser rate apply to transferred balances or new purchases or both?
• Does the card charge a balance-transfer fee?
• What about late fees and over-the-limit fees?

It's also important to realize that not everyone qualifies for the zero-percent rate promised in big bold print. The teeny, tiny print near the end of the credit card offer explains this. So you could end up qualifying for a card with a higher teaser rate or no teaser rate at all.

If you do qualify for a zero-percent card offer, that's fantastic. But don't get too comfortable.

To make the most of your interest-free card deal you'll need to stay on your toes.

First off, you'll want to make sure any balances you transfer onto your rock bottom card deal arrive without a hitch.

If the zero-percent teaser rate is on balance transfers only, avoid making any new purchases with the card. Issuers have a policy of applying payments to balances with the lowest interest rates first. You'd have to pay off the entire balance transfer before a single penny gets directed to any new purchases you've made with the card.

This is not the credit card to take with you on your next trip to the mall. If you do, you could end paying a truckload of interest on a $50 sweater.

You also want to be incredibly diligent about paying your card bills on time. One late payment and you can kiss that zero-percent interest rate good-bye.

"Typically, the tickle rates have fixed time periods, but if you screw up during the time period, the gloves come off," Dvorkin says.

Remember to make the most of an interest-free deal, you'll want to pay off that balance in-full before the teaser rate ends. And that means getting serious about your debt.

"There's no easy way to get out of debt. You've got to be diligent about paying down debt, and you've got to do it as soon as possible because that way you're paying the least amount of interest," says Brad Dakake, a consumer advocate with Massachusetts Public Interest Research Group.

Of course, the credit card companies are betting that most people that land a zero-percent deal won't pay down their debt and that a big, fat balance will linger long after the interest-free period ends.

"What they're hoping is that there's enough customers that move their balances and leave them there," says Les Riedl, executive vice president at Speer & Associates.

Prove them wrong. Use the interest-free introductory period to get rid of your debt. Let the credit card companies make their money off someone else.

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This article was written by Lucy Lazarony, BankRate.com Staff Writer.