There are many credit cards on the market that offer 0% interest rates. These products allow customers to transfer balances and make purchases without paying interest for as long as 18 months. Without any additional financing costs, it can be tempting for cardholders to make the minimum payment for as long as possible with the intention of paying off the entire balance before their promotional financing expires. But is this a wise strategy?
Let’s see why it presently makes sense to pay off credit cards used for 0% balance transfers and new purchases as quickly as possible.
Reasons to pay the minimum balance when utilizing 0% APR financing
When there is no interest being accrued, common sense might tell cardholders to refrain from making any more than the minimum payment until the promotional financing expires. In this way, customers can keep their money in a savings account that earns interest, rather than making an unnecessary payment.
The advantages of paying off a balance before promotional financing expires
While it is tempting to hold on to money rather than make a payment that appears to have no advantages, there are several good reasons to pay off a credit card balance before it is necessary. First, cardholders will have less outstanding debt and a smaller debt to credit ratio. These two factors will help raise credit scores.
Additionally, paying off a credit card balance is a conservative thing to do. There is no telling what the future holds, and it may be tempting for some cardholders to tap into a savings account full of funds. Paying off a balance early assures the cardholder that no interest charges will be incurred regardless of future events.
Finally, the interest earned on a typical savings account is incredibly small these days. If a cardholder were to take a moment and determine exactly how much interest is being earned on the funds necessary to pay off a credit card balance, he or she might find it is not a very significant amount.
By taking a closer look at the pluses and minuses of paying off the entire balance of a card that is still under a promotional balance transfer offer, cardholders can make the best decision when they have the funds necessary to do so.
Ultimately, in this low rate environment, the best way to handle a 0% APR credit card debt is to treat it like one with a 30% interest rate. This way, there is no risk that money not spent paying down debt is misspent and you end up with debt remaining when the 0% rate expires.