Should You Use a Promotional No-Interest Credit Card for Big Purchases?

Screen Shot 2013-03-11 at 4.27.11 PMWhen it comes to frugal living, many people advocate paying for something outright in cash. Obviously, that is wise because if you do not have the funds for it at the time of purchase, you probably will not have the funds for it when the credit card payment is due.

While I believe cash is the best option, what about no interest credit card promotions? If you are wise with your money, and you are in need of a larger purchase, then I think they are a good idea. Here’s my story:

My husband and I had just had a baby and moved into our new home. So not only were we exhausted, but our savings, except for $1000, had been used. We were using my late grandfather’s refrigerator (16 years old!) and while not pretty and a money/energy hog, it was fine until we could buy a new one. The plan was to save up $1500 and purchase a nice fridge that would last us a long time.

Well, you know how plans go…the fridge didn’t die on us, but all of a sudden, food was going bad. The milk that still had a week and a half left before it expired was sour (and my husband usually drinks milk a week after the expiration date, so I know it had to be extra sour). Then some chicken I ate from the fridge made me sick. But the worst thing of all was when the baby got sick from bottle I had put in the fridge. She was about 6-8 weeks old, and she screamed and cried for 2-3 hours, even while I was holding her in a warm bath trying to help her get all the painful gas out. If you have ever been there as a new mom, you can relate to my anti-frugal statement to my husband: “I want a new fridge asap!”(or whatever I said).

Even though we didn’t have the exact cash to buy the fridge, we still went to Lowe’s anyways. I found a floor model I liked and told them I wanted to buy the floor model at a discount. We also got a nice little discount because a month and a half before this time Lowe’s installed a washer and dryer and broke the water valve and flooded my carpets and wall, but that’s another story. So anyways, on top of getting a $1900 fridge for $1350 including an extended, we also applied for a new Lowe’s credit card that would give allow 6 months of interest free payments.

Are These Credit Card Promotions Right for You?

I just made the last payment, and I can say that it was a great idea for our financial situation. Will a no-interest credit card work for you?

  • Can You Make the Monthly Payments? Because we had 6 months, we took the balance of the debt and divided it by 6. We then had to make sure $225 was set aside each month for the payment. However, some months we faltered on this, which resulted in having to come up with more money at the end. If you are considering a similar type of credit card, see if it is in your monthly budget first. If I had waited until the last month to pay $1350 (or whatever the leftover was after paying the monthly $35 min.), then it was not going to happen, and it would be have been very stressful.
  • Is It In Your Budget? Whatever you are planning on buying, can you pay it off in the amount of time that you have the interest free promotion? For example, you may think that buying something for $3000 on a no-interest for 6 months credit card is something possible for your financial situation, yet you did not take the time to realize that you didn’t have an extra $500/month wiggle room in your budget.
  • What’s the Penalty? Remember that if you do not pay off your debt during the interest-free time period, all of the accumulated interest will be tacked on to your bill. Ours was about $125. That is $125 I did not want to spend for no reason.
  • Is the Purchase Worth a New Card? I suggest only taking advantage of an interest-free credit card for large purchases that are a necessity and that fit into your budget. Many clothing/retail stores offer similar interest-free for ___ months promotions too, but this would be an unwise choice. For one, while clothing is a necessity, expensive or large amounts of clothing are not. On the other hand, a fridge or washing machine is definitely a necessity for some.

The moral of the story: if you are financially mature and have the funds within your monthly budget, an interest-free promotional credit card is a great way to purchase a large necessity. The problems come when you use the credit card for more charges and do not pay off the initial debt within the promotional period.