Using a 0% APR credit card for holiday shopping can save money on interest, but be sure to avoid these pitfalls that could hurt you in the long run

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  • Many credit cards offer an introductory 0% APR (annual percentage rate) for a specified time period on new purchases, balance transfers, or both.
  • If you don't have a plan in place to pay off the balance before the promotional period ends, you could get stung by substantial interest charges (and debt) once the 0% offer expires.
  • However, if managed carefully, 0% APR offers can save you a lot of money, whether you transfer a balance from a high-interest card or need to pay for large purchases over time.
  • Read Business Insider's guide to the best 0% APR and low-interest credit cards.

With the holiday season fast approaching, so are plans for celebrating and buying gifts for friends and family.

While purchasing those gifts on a low-interest or 0% APR credit card may seem like a good idea, it doesn't make sense for everyone. In fact, you'll be hard-pressed to find a personal finance expert who recommends going into credit card debt for any reason, because even with a low or 0% APR, any balance you carry is still a debt you'll have to pay back.

However, there are a few reasons to consider carrying a balance on a 0% APR credit card. You just need to be smart and have a clear plan before doing so.

We're focused here on the rewards and perks that come with each card. These cards won't be worth it if you're paying interest or late fees. When using a credit card, it's important to pay your balance in full each month, make payments on time, and only spend what you can afford to pay.

Should you use 0% APR credit cards?

APR, or annual percentage rate, is the amount the issuer charges you if you don't pay your credit card off in full by the due date. For example, if you carry a $1,000 balance on a 20% APR credit card, you would owe an additional $16.44 at the end of a 30-day billing cycle (20% annual rate/365 days x 30 days x $1,000).

The big issue is that credit card interest compounds. Assuming you don't make more purchases, the next month, your balance would be $1,016.43, and you'd owe an additional $16.71 at the end of the next 30-day cycle, and so on. It's easy to see how this could spiral out of control if left unchecked.

The benefit of a 0% APR credit card is that you don't have to pay interest on your balance, or debt, carried on the card, as long as you make at least the minimum payment each month. This is usually for a set amount of time and may apply to new purchases, balance transfers, or both.

When should you carry a balance on a 0% APR credit card?

If you decide to carry a balance on a 0% APR credit card, you should have a specific reason or plan.

One common scenario is when you already have a balance on one or more high-APR credit cards. To avoid more steep interest charges, you might consider opening a new card that offers a promotional 0% APR for balance transfers, or taking advantage of a 0% APR offer you receive in the mail. This can buy you time and save you money on interest while you make a plan to pay off the balance, and simplify things by consolidating your debt onto a single card.

Most cards offer 0% APR periods that range from nine to 15 months, but a handful, like the U.S. Bank Visa Platinum Card, last for 18 months or more.  

Another situation where opening a 0% APR credit card makes sense is when you need to make a big purchase, but can't afford to pay it all off in one month. This is helpful in the short term, but you need to have a clear plan to pay off the purchase (and make at least the minimum payments) before the promotional period runs out. Otherwise, you'll still be in debt after the 0% APR intro period ends and will get hit with high-interest rates on a purchase you couldn't afford.

It's tempting to take advantage of offers like this for a splurge or shopping spree, but it's better to limit yourself to things you actually need. Getting a 0% APR credit card does not replace a good budget and spending habits.

What to watch out for with 0% APR credit cards

0% APR credit cards are a handy tool, but you need to be diligent and ensure you know all the rules associated with the offer. Familiarizing yourself with the terms and conditions of a 0% APR card before you apply will help prevent missteps and ensure you don't run into any surprise charges.

Here are common pitfalls to look out for:

  • 0% APR restrictions: Your promotional rate might just apply to balance transfers (and only to those made within a specific timeframe from when you open the card), or only to new purchases.
  • Make the minimum payment every month: If you don't, you might lose your 0% APR offer and get stung with late fees, and your credit score will take a hit for missing a payment.
  • Have a plan to pay off the balance: Whether it's nine months, 15 months, or 18 months, you need a strategy to pay off your balance before the offer period ends. Otherwise, you'll be on the hook for substantial interest charges — which you were trying to avoid in the first place. 
  • Watch out for balance transfer fees: Even if the card offers a 0% APR on all balance transfers, there's usually a one-time fee (typically a small percentage of the balance) you need to pay in order to move your debt over to the new card.
  • Monitor your credit utilization: A big increase in credit utilization can negatively impact your credit score. Avoid maxing out your credit limit.
  • Take annual fees into account: Some credit cards charge an annual fee which can be worth it for other benefits but will add to your upfront cost. There are lots of no-annual-fee cards with 0% APR offers if this is a consideration for you.

Blindly going into debt is a terrible idea, but using a 0% APR credit card for a balance transfer or to fund a large (and necessary) purchase that you can afford to pay off over time can save you a ton of money —  if you're careful.

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