With a final flurry of gift buying before Christmas day, some shoppers might be attracted to zero-percent interest credit cards. These can have a nasty sting in their tail if not used wisely, though. It's essential to understand all the terms and conditions.
Enjoying a zero-percent interest credit card sounds ideal, especially for those with a lot of holiday shopping to do. The National Consumer Law Center's attorney, Chi Chi Wu, said, "No interest sounds tempting now, but you could end up in the trap of huge interest payments later." This is because most of these cards have deferred interest, which allows shoppers to benefit as long as they make their repayments on time and clear the card balance within a specific period.
Just paying off the minimum amount required each month will not always clear the balance within the specified time. Missing this deadline often means that interest rates are not only applied to the final outstanding balance, but to the entire purchase price, backdated to day one. For example, buying a $2,500 stereo system with zero-percent interest over a year seems attractive. If $100 is left outstanding after the 12 months are up, however, interest is calculated not on the remaining balance of $100, but on the full price of $2,500.
Zero-percent interest cards can be extremely useful, especially for making large purchases. To make the most of the benefits, however, you should clear the whole balance before the deadline. For more information, check out Zero Percent Financing 101.
If you want more credit, check out MoneyTips' list of credit card offers.
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