A 0% APR credit card is one that offers an introductory 0% interest period on either purchases, balance transfers or both. Getting a break from finance charges can be a welcome change from the double-digit interest typically charged on credit cards. The less you’re paying in interest, the more you can put towards paying off your debt.

Here’s what you need to know about 0% APR credit cards.

How A 0% APR Credit Card Offer Works

There are two types of 0% APR offers:

  • Purchases. Use the card to make purchases and pay it off over the promotional period, interest-free.
  • Balance transfers. Save on existing high-interest debt by transferring your balance to a 0% APR card.

Using a card with 0% APR on purchases is fairly straightforward. Just use your card as you normally would. Then, pay off the balance over time without incurring any finance charges for the life of the offer.

For example, make a $10,000 purchase on a card that has an introductory 12-month 0% APR offer in purchases and you’ll have 12 months to pay it without piling on additional debt. But, after the promo period ends, the card’s standard variable APR kicks in. This means if you’re still carrying a balance after the 12-month period, that balance will be subject to the card’s interest charges. Ideally, you’ll pay off the entire amount by the time the card’s 0% offer ends.

Making a balance transfer requires a few more steps. Often when you’re signing up for a card with a balance transfer offer, you’ll be asked during the application process if you want to transfer a balance. Otherwise, you can contact your card issuer to initiate the balance transfer. If the card charges a balance transfer fee, that can affect how much you’ll actually be able to transfer.

For example, if you’re approved for a $10,000 limit but the card charges a 5% balance transfer fee, you won’t be able to transfer the full amount. If you transfer $9,500, you’ll have to pay a $475 transfer fee, putting you just under your total credit limit. Keep in mind, just like with a 0% offer on purchases, after the card’s promo period ends, any remaining balance on the card will incur interest at the standard APR.

There are some cards that offer 0% APR on both purchases and balance transfers. If you’re transferring debt that you need extra time to pay off, it’s generally not a good idea to also make purchases on the card. You should know that some cards that offer 0% APR on both purchases and balance transfers have different offer periods for each. For example, a card could offer 18 months at 0% APR on balance transfers but only 6 months on purchases.

A 0% APR Card Can Help You Shed Debt More Quickly

Think of a 0% APR offer like an interest-free loan with an expiration date. If used responsibly, it can give you a cushion of time to pay off what you owe, without accumulating additional finance charges.

Here’s how the math works. If you want to make a $5,000 purchase and your current card charges 18% interest, it will take you 11 months to pay off your card if you make a $500 payment every month. Plus, you’ll have paid an additional $458.11 in finance charges. If you use a card with an introductory 12-month 0% APR offer to make that same $5,000 purchase and you make $500 monthly payments, it will only take you ten months to pay off the balance without adding any finance charges.

If you want to pay down debt with the help of a balance transfer, keep in mind that many of the cards with the longest interest-free periods are likely to also charge a balance transfer fee—typically 3% to 5% of the amount transferred. This fee can eat away at the actual amount you’re able to save from a transfer. For example, if you’re looking to shift $10,000 worth of debt to a card with a 5% balance transfer fee, it will cost you $500 to do so.

To make the best choice for your particular circumstances, calculate if the cost of transferring your debt—including the balance transfer fee— is less than what you’ll pay in interest on your existing card. If you need more than two or three months to pay off your debt, a balance transfer is likely to be a less expensive option.

There are a handful of cards that don’t charge a balance transfer fee, like the Amex EveryDay® Credit Card*. These cards may be a better choice as long as you can pay off your debt before the interest-free period ends. But if you’re seeking the longest runway possible to tackle your debt, it may be worth it to you to pay the transfer charge on a card with a longer 0% APR period.

Balance Transfer Fees May Apply, But They May Be Worth It

If you are considering a balance transfer card, make sure to account for any balance transfer fees when deciding if it’s a fit for your particular circumstances.

Here’s an example of how to calculate if a specific balance transfer offer is worth it for you: Say you are carrying $10,000 in debt on a card that has an APR of 20%. If you pay $1,000 per month toward that balance, you would need a year to pay it off and you’ll be charged an additional $1,030.45 in finance charges.

If you transfer that same $10,000 to a card offering 0% APR for 12 months with a 3% balance transfer fee. The balance transfer fee will add $300 to your debt. If you make payments of $1,000 per month, you’ll need 11 months to pay off your balance. Even after considering the balance transfer fee, you’ll have paid $730.45 less than if you had left it on the card with 20% APR.

If instead, you transfer that same $10,000 balance to a card with a 0% APR for 21 months with a 5% balance transfer fee, you’ll pay a $500 fee to transfer your balance. Since you have 21 months with 0% interest, you can make payments of only $500 per month and still have the card paid off before the no-interest period is over. Making the same $500 payments on the card with 20% APR, it would take you 25 months to pay off your debt and you’d incur $2,266.07 in interest charges. The 0% APR offer here would save you $1,766.07, after accounting for the balance transfer fee.

Zero Won’t Last Forever

When a credit card dangles an enticing opportunity to get a break on interest, it’s always for a limited period. Even the best 0% APR offers are only extended for a specific length of time—typically anywhere from six months to nearly two years— before your card will revert to the regular variable APR.

Make a plan to pay off as much as you can—ideally, all of your balance—before the promotional period expires. Note the date your offer ends so you’re not surprised when your bill arrives after that blissful interest-free time.

Don’t Expect Rewards on a 0% Transfer Offer

Although there are cards that offer rewards and 0% APR, it’s unlikely you’ll find a card that will let you earn rewards on a transferred balance. Typically rewards are only earned on new purchases. The rare exception is the Priceline Visa Card, which offers up to 5,000 bonus points on balance transfers completed in the first 30 days you have the card.

If you have credit card debt, it’s not a good idea to be focused on rewards, anyway. According to the Federal Reserve, the average APR charged in the fourth quarter of 2019 for credit card accounts that incurred interest was 16.88%. Credit card rewards, by comparison, typically offer anywhere between 1% to 6% back on the amount of your purchase. The cost of interest charges will quickly outweigh the value of rewards earned.

Remember to Consider the Card’s Ongoing Attributes

When comparing different offers, look beyond a card’s promotional period and think about if you can use the card after you’ve paid off your balance. Features to consider:

  • Does the card have an annual fee? If so, is it worth keeping after your debt is paid off?
  • What’s the card’s ongoing variable rate? If you don’t think you can pay off all or most of your balance and the card you’re eyeing has an above-average interest rate, you may be better off with a low-interest card.
  • Will the card earn rewards? Once you’ve paid off your debt, will the card’s earnings structure match up with where you typically spend the most?

Taking Advantage of a 0% Offer Can Affect Your Credit

With few exceptions, when you apply for a new credit card, the issuer will do what’s called a hard inquiry to obtain a copy of your credit report. New credit makes up 10% of your FICO score, so you can expect that your credit score will go down by a few points when you apply for a new card. If you open to many new accounts in a short period of time, it can signal to lenders that you might be too big of a risk to approve yet another line of credit.

A larger consideration is what a big purchase or sizable balance transfer can do to your credit utilization. Credit utilization accounts for 30% of your FICO score and is calculated by taking your total debt (across all credit card accounts) and dividing by your credit limit (across all accounts). Typically, you want your overall credit utilization to be under 30%.

If you were hoping to open your first credit card to take advantage of a 0% APR offer so you can make a $5,000 purchase, but you’re only extended a $5,000 credit line, that would utilize 100% of your credit and is likely to adversely impact your score. However, if you have two other credit cards, each with a $10,000 credit limit, your utilization would only be 20% ($5,000/$25,000).

Other Things to Take Into Account

  • Will you qualify? Some of the best 0% APR offers are only available to those with good credit or better, typically a FICO score of 670 and above. There are 0% APR cards aimed at those with less-than-stellar credit but the terms may be less appealing.
  • Is it issued by a different bank than your current card? Most banks won’t let you transfer a balance from one of their cards to another. Even if you get approved for a card with a balance transfer offer issued by the same bank as the card you already own, you aren’t likely to be able to to shift your debt over to the new card. A way to get around this is to take a check into your bank account, which some companies allow, then pay off the other card with the funds.
  • You may not get approved for the limit you want. With few exceptions, credit card issuers won’t let you know how much credit you’re approved for until after you’re approved for a card. This could be a problem if you were hoping to transfer $10,000 worth of debt or make $10,000 worth of repairs to your home but only get approved for $5,000.