The other day a friend of mine was inquiring about paying off credit card debt using a zero interest credit card.
She had moved all of her debt from a high interest credit card to a zero interest credit card and had completely paid off that debt very quickly, which was awesome. She had two other high interest cards and asked me if she should move the debt from those over to the same zero interest card or if she should open a new zero interest credit card. I had to pause a bit before I considered the answer.
First things first.
A zero interest credit card is a credit card that has zero interest for a certain amount of time, after which the interest rate spikes up, usually higher than a ‘regular’ credit card. If you’re really diligent about paying off a zero interest credit card quickly, you can pay it off before the high interest rate kicks in.
I wrote about these types of cards before in my post: Is a 0% Interest Credit Card Just a Blatant Lie In a Pretty Package?
Zero interest credit cards have their pros and cons, and both are pretty simple. In a nutshell:
Pro: You can pay off debt quicker when you have no interest gathering on the debt while it’s on a zero percent interest credit card.
Con: If you don’t pay off your debt fast enough on aforementioned card, you’ll have a hell of a LOT of interest gathering on that debt.
So, let’s back to my friend’s question about whether or not she should move multiple balances to the same zero interest card. Here are the facts:
- My friend had 3 high interest cards she needed to pay off
- She had one zero interest credit card
- She had already moved two high interest cards onto the zero interest card and had paid off one card’s debt already.
- In May, the zero interest would turn to VERY HIGH interest, probably around 20+ percent, which is awful.
- She still hadn’t moved the third debt and was wondering if she should move it to the zero percent card or open up a new zero percent card for that last debt.
Here’s my answer, with additional questions, in 3 parts:
- Can you beat the balance transfer fee? Some zero percent interest cards have a 3 percent balance transfer fee. If your zero interest card has this fee, you have to calculate whether that 3% is less or more than the interest you will end up paying on the original card before your debt is paid off. For example, if you have $1000 in debt on a card and move it to a zero percent interest card with a 3% balance transfer fee, you’d have to pay $30 to transfer the debt. If you would end up paying less than $30 in interest on the original card before you paid off the $1000, it wouldn’t be worth it. If you had a zero percent interest card with no transfer fee (they do exist), you’re fine and wouldn’t have to make this calculation. If
- Can you pay off the second AND third debt by the time the zero percent interest expires? In this case, if she could pay off all debts before May, her interest rate would stay at zero percent and she would get all the pros out of the card with none of the cons.
- Can you put all the debt from various, different cards, on one zero percent card? This was a question I had to ask myself, and then had to google. I wasn’t sure how things worked with putting multiple debts on one zero percent card. Turns out it’s fine. It’s equally fine to put the debts on different zero percent credit cards (you can open multiple at the same time, depending on your credit score and approval, of course.)
One last MAJOR note: Don’t close the original card after the transfer, unless it has an annual fee that you don’t want to pay. Closing older credit cards hurts your credit score.
So my friend was able to get all her debt from 3 cards on one zero percent credit card, and is on track to pay everything of by May before the interest goes up. This will save her tons of money in interest in the long run.
Hope this helps you guys understand zero percent credit cards a little better, and wasn’t too complicated. If used wisely, AND QUICKLY, zero percent interest cards can be a great tool to help get you out of debt.