The holiday season is a time of joy and giving but for many Americans, it is also a time that many credit card users accumulate debt. Promotional offers for 0% APR financing can provide some relief, but cardholders should use caution. The improper use of these programs can lead to even more debt, fees and interest payments than ever before.
Here are six things you should not do with a promotional financing offer from your credit card issuer.
1. Try to transfer a balance between two cards from the same bank. Simply put, you can’t do this. There is no place in the terms and conditions that clearly spells out this fact, but no bank will let you use a promotional balance transfer to pay off another account with the same institution. From the bank’s standpoint, these offers exist to win your business from a competing band, and doing so would defeat their purpose.
2. Go on a spending spree. Just because you can temporarily postpone interest payments, it doesn’t mean that you should incur debt. You will have to pay it off eventually.
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3. Miss your minimum payment. With these offers you will not be incurring interest, but you will have to make your minimum payment each month. Missing a payment will mean that you will incur the penalty interest rate, which is often 30% APR or higher.
4. Make a balance transfer when you are about to pay off your debt. Almost all credit cards with promotional balance transfer offers have a balance transfer fee of 3% or more. Paying this fee is worth it when it will take you some time to pay off your debt. But if you are just about to pay it off in the next few months, the fee is not worth the savings.
5. Transfer a balance without a plan. Promotional financing offers are a great tool to use to retire your debt, but you need a plan. When selecting a credit card with a balance transfer offer, you should only do so as part of a strategy to retire your debt. If you are planning on just saving a small amount interest payments while maintaining your debt indefinitely, there is not much point in these offers. Actually, to do so would be to reinforce the bad habits that got you into debt in the first place.
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6. Carry a large balance for a long time. Some cardholders might carry a balance even when they have the money to pay off their debt. This would be a mistake. First, it is unlikely that you will earn significant interest on your savings. But in addition, having a large outstanding balance will hurt your credit score.
Interest free financing offers can be a great way to save money while paying off your debt. And by avoiding these six practices, you can use your good credit and your bank’s generosity to the greatest possible advantage.
Image: seishin17, via Flickr