Interest free credit cards
Most of us will have seen the ads that flash on the TV promising an enticing interest free purchase or balance transfer offer. And who doesn't like the sound of 0% spending or paying off debt free of the pressure of interest?
But if you're wondering if these interest free deals are all they're cracked up to be, read our quick guide that will run you through the types of 0% offers available and the tricks to use these cards like a pro:
Types of interest free credit cards
0% purchase rate: Are you looking for a credit card that comes with no interest, to pay for some upcoming costs like your wedding, small home refresh or simply to get you through the Christmas holiday season? If you answered yes then you are in the market for a 0% purchase rate deal, which means all purchases you make on the card (excluding ATM withdrawals) will be free of interest for a set period, as long as you pay the minimum repayment amount each month.
0% balance transfer: If blasting your debt for good is on your mind then your interest free match will be a balance transfer offer. Say you have debt that you're struggling to pay off on your current credit card with a high interest rate, with a BT deal you can move your balance across to another provider and be charged no interest for the BT period that usually ranges from 3 to 12 months (some even reach up to 20 months). Here are our tips on making a balance transfer card work for you.
Interest free days: Did you know that most credit cards also come with 44 or 55 interest free days? This means that if you diligently pay the amount you spent during the statement period by the due date, you won't be charged any interest ever.
Interest free credit card tips
While interest free credit cards provide a great holiday from sky high credit card rates, there are some rules to follow to ensure you use the card to your advantage, without falling into debt.
Here are our top tips:
Whether you're looking to use an interest free card for purchases or are seeking to ditch debt, it's important to set a budget.
Purchase rate: While you'll be free of interest for a set period, make sure you only spend what you know you can afford to repay before the interest free period comes to an end. The best way to ensure you don't spend out of your means is by setting a budget that you can stick to.
Balance transfer: Before you take out a BT deal you'll need to determine how much you need to repay each month because just paying the minimum won't clear the debt within the balance transfer period. For instance, with a 10 month BT offer and a $5,000 debt you would need to repay $500 a month.
2. Choose the right term (3, 6 or 12 months interest free)
Think about how long you need the interest free period for. This is especially important if you're planning to use the interest free card for long term expenses. 12 month interest free credit cards are extremely popular in Australia, but when you consider Mozo's database shows 0% purchase rate terms range from 3 to 24 months, you're sure to find a term to suit you.
The same goes if you're looking to roll your debt across to a balance transfer card, as you'll need a timeframe that will ensure the balance is fully paid off before the BT offer reverts to a higher rate. Have a play with our debt payments calculator to get an idea of the type of term that would suit you.
3. Look for a low annual fee
When you start your hunt for an interest free card don't just search for a lengthy term, also make sure you check what the annual fee is because what's the point of signing up with an interest free card, if the benefit is negated by a pricey ongoing fee?
4. Check the revert rate
If you want to keep the plastic in your pocket after the interest free period comes to an end, it's worth checking that the card reverts to a competitive rate under 15%.
5. Set up automatic repayments
Once you have the card in your pocket, make payments a breeze by setting up a direct debit from your bank account to the lender.
6. Avoid cash advances
The 0% offer only applies to purchases or the balance transfer. So if you withdraw cash from an ATM you will be charged the cash advance rate, which Mozo's database shows is commonly above 20%. On top of this, interest free days don't apply for cash advances, so you will be charged that interest immediately.
7. Pay off the balance before the interest free term ends
This tip may be last on our list but it is probably the most important. By paying off the balance in full within the introductory period you will come out as the winner, enjoying an interest free period to fund a big ticket item or pay off debt.
How to find the best deals on Mozo
Think you've got a handle on using an interest free card the right way? Then start comparing deals in the table above or search our whole database using our credit card comparison tool. Alternatively, if you're looking to blast your debt use our Switch & Save Calculator here to see how much you could save by transferring your debt to an interest free deal today.