Zero Rate Credit Card or Not

Zero rate credit cards seem to be the market hit these days. Almost every issuer has offers for a zero rate credit card. Well, this might be one of the benefits of competition but before jumping into the deep sea, decide for yourself if a zero rate is a bargain or not. Credit card issuers might be pressed by competition to offer better and better terms for their customers but you don't believe that credit card issuers will operate at a loss, do you?

The most typical feature of zero credit cards is that they offer a zero interest rate only for some time – the introductory period, which can be a month, or two, or even more than a year. After the introductory period is over, the interest rate generally jumps high. In some cases the introductory period can be ended prematurely. For instance, it might be written in your card holder agreement that if you miss a payment, this terminates your introductory period and the zero rate that goes with it. So be very careful about the period during which you are eligible for the zero rate.

Zero credit cards can be good for you only if you plan to repay your balance quickly – i.e. before the end of the introductory period. One of the cases when you will certainly benefit from a zero rate card is when you make a balance transfer from a credit card with high interest rates. In this case you are certainly making profit because you will pay less interest. However, beware that balance transfer fees are also zero rate because quite often zero rate applies only to new purchases and balance transfers are subject to higher rates.

Another issue to consider with zero rates is their annual fee. Generally annual fees are on decrease and many credit card issuers offer credit cards with no annual fee but this does not mean that your zero credit card will be in that category. If the annual fee of your zero credit card is high, it could easily exceed the amount you would have paid on a low-interest rate card without an annual fee because the savings you would make with the zero rate will be eaten up by the more money you will have to pay for the annual fee.

Deciding if a zero rate credit card is good for you or not can be somehow tricky. In many cases a low-interest rate credit card is a much better deal, especially in the long-term. Zero credit cards are good for short-term large purchases but only if you do not leave a balance after the end of the introductory period. Luckily for credit card issuers, many card holders simply can't repay their balance in full before the end of the introductory period, so they enter into the period of paying high interest rates, no matter if they like it or not. Well, if there were no such customers, credit card issuers would have gone bankrupt but this also must flash a light that the inability to pay off your debts while the conditions are favorable, can also happen to you.

If you really can't make up your mind whether to take a zero credit card or another one, you can take both. However, be warned that this is not always very wise. First, if both credit cards have annual fees (or maintenance costs under a different name), you will have to pay two annual fees, instead of one. Second, if you already have a whole bouquet of credit cards, adding more is not good for your credit report. Having many open lines of credit (and credit cards are an open line of credit) makes you a higher risk in the eyes of potential creditors, which in turn can lead to worse conditions on your other sources of credit.

So, if you are offered a zero credit card, don't take it immediately, no matter how lucrative it looks. Take it only if you really need it and if you can repay your balance before the introductory period is over. Credit cards are too expensive to take them as collectibles, so be wise and don't accept a zero credit card only because you have been offered.