When a 0% APR credit card falls across your lap, there are big questions to be had. Primarily, the questions revolve around what you should do with it to maximize the benefits for you without ever accruing interest. And, while not everybody gets the opportunity to use a 0% APR credit card, if you do, you should certainly take advantage. One of the best ways to ensure that you have access to these possibilities is to make sure you have a good credit score all the time. The better your credit score, the more often these sorts of cards will arrive in your world.
So, when the opportunity arises, here are our favorite ways to utilize these types of credit cards.
1. Bulk Up Your Emergency Fund
With all 0% APR credit cards, the initial interest rate is promotional. This means that your card won’t always be at 0%, but will go up to whatever their regular rates are at a certain time. Sometimes they are only for 6 months, but more often than not you will find them to fall between 12 – 18 months. And if you are really lucky, with exceptional credit, sometimes you can even find one for 24 months. Which is fairly irregular, but awesome!
Now that the disclaimer is out of the way, let’s talk about one of my favorite ways to use these golden opportunities. Bulking up your emergency fund!
During the regular day in and day out of life, sometimes bulking up our emergency fund can become pretty difficult. So, when that happens to be the case, I like to use these opportunities to help pad ours a little bit more.
High Yield Savings Account
How this works is that you will need to do a balance transfer, in most cases, from the card to your emergency fund. Hopefully, you have your emergency fund in a high yield savings account, so that you can rack up the most interest possible.
During the period of time that money is in your emergency fund, you will be accruing interest. So the more you are able to put in there, the more interest you will gain.
I usually pull the amount owed on the card out of my emergency fund a month before it is due. That way I am not cutting too close and risking having to pay interest on the money.
At the end, whatever I earned in interest from that money in my high yield savings account is what I get to keep in my emergency fund. While it may not always be a lot of money, it’s still better than nothing. And you were able to earn money to pad your emergency fund without actually having to put any of your own money in. Score!
2. Pay Down High Interest Credit Cards
Another way to utilize a credit card like this is to use the “free” money to pay down other high interest credit cards. This is going to be a similar strategy as the emergency fund category. However, it will have one slight difference that could potentially cause issues if you aren’t careful.
This is because you won’t be putting the money in a savings account as liquid cash. Instead, you will be creating a balance transfer to pay off, or down, another high interest credit card that you owe money on. While that gets rid of the interest, you still have to pay off the new card in time. And this can save you thousands of dollars in the long run.
If you won’t be able to pay off the new 0% APR credit card before the end of the promotional period, then you will just end up with more high interest debt. However, if you know this is the deal going in, then the budgeting should be easy.
You should figure out exactly how much you need to pay monthly to ensure the card is paid off by the end of the promotional period. Here is a good example of some simple math to work with:
- Paying off $10,000 in credit card debt (that includes whatever interest you have accrued)
- Using a 12 month 0% APR credit card
- $10,000 / 12 months = $833.33
- I would budget $900 instead to that it’s paid off early
And that amount should be added to your monthly budget. This way you can really maximize how much money you are saving and help get yourself out of debt faster.
3. Home Improvement
Besides bulking up my emergency fund, this category is one that I have used 0% APR credit cards many times in the past for. Especially as a homeowner, I am always looking for ways to increase my property value. And I like to do a lot of it on my own, when I can, to help save money.
But, if you have been waiting to do a larger project, a 0% APR credit card may just be the way to go. We used one recently from Home Depot to get all new floors in our house done.
Our house was built in 1975 and had about 9 different types of flooring throughout the house. Therefore, new flooring had been on my list for awhile. So, when we ran across a 0% APR Home Depot card for 12 months, we took advantage and got the flooring done.
This card also came with $100 rebate and discounts on the installation. So we actually opened two cards, one for each my spouse and myself. That way we got $200 in rebates and had 12 months to pay off the balance. We knew going in exactly how much we needed to budget each month. This ensured it was paid in full a few weeks prior to the deadline. Which was awesome because we got the new floors we had been eyeing for a few years. Plus, we didn’t have to pay any interest on the money while we were paying it off.
Even if you don’t find a store card with a 0% APR on it, there are quite a few other options that you could also work with. So if you are thinking about home improvements, don’t discount a 0% APR credit card. And do your best to find one with the longest terms so you have more time to pay it off.
4. Buy a Car
I realize that buying a car can be a pretty expensive venture. But, if you are planning to purchase a used car that can be an entirely different story. We, personally, prefer to purchase used cars because they save us more money in the long run. Plus, we are easily able to pay for a car in “cash,” which means we aren’t paying interest to anyone.
I just did this recently on my newest car and it was fantastic. I got an offer for a 0% APR credit card with a 12 month promotional period and 2% back on all purchases. So, I traded in my other car (and trust me that I shopped that around for almost a month!). Then I paid for the remaining balance of the “new” 2013 Lexus ES300H with my 0% card. Yes, it’s a hybrid!
We have another 11 months to pay it off in full. But because of the 2% back, and the one payment we have made so far, we have already paid off 20% of it. Which means that we should easily have it paid off well before we actually need to.
Please keep in mind, though, that this is ONLY a good idea if you know you will have the cash to pay it off in full before the promotional balance period ends. If you aren’t sure that you will have the cash flow to make it work, then you shouldn’t do it.There are so many awesome ways to maximize the benefits of a 0% APR credit card! Click To Tweet
5. Pay Down Loans
One more great way to utilize 0% APR credit cards is to pay down other loans. These can be high interest loans or not. Anything higher than 0% would work from a math perspective. Therefore, these could work for things such as:
- outstanding personal loans (I took one out a long time ago for home improvements)
- a car loan
- a business loan
- home improvement loan
Ultimately, you would be doing the same process here as you would in the high interest credit card category. So, you must make sure you will have enough money to pay off the balance in full prior to the end of the promotional balance.
0% APR Credit Card Love
Overall, there are a lot of great ways you can choose to use a 0% APR credit card if you are lucky enough to qualify for one. The bigger question is how can it serve you best in the long run.
To recap, the 5 best ways we have found to utilize these little gems are:
- Bulk up your emergency fund
- Pay down high interest credit cards
- Home improvement projects
- Buy a car
- Pay down other loans
Ultimately, no matter what, you need to ensure that you will have the funds to pay it off in full before the promotional period ends. Otherwise, you are just committing yourself to an endless cycle of credit card debt. And none of us want that!
When you get offered a 0% APR credit card, what are some of the best ways you have found to utilize the opportunity?