Credit cards are not just useful financial instruments for customers, they are highly profitable products for banks. Therefore, card issuers are willing to go to great lengths in order to attract new customers. Typically, new applicants are offered 0% APR promotional financing on balance transfers and new purchases, a lump sum sign up bonus, or even both.
So with all of these tempting offers, which should applicants focus on?
The case for 0% APR
Interest free promotional financing is a key tool for credit card holders to retire their debt. For example, a cardholder that has $5,000 in debt on a card with a 15% interest rate will incur $446 in interest if paid off over the course of 15 months. But that same cardholder will pay no interest if he or she transfers the balance to the Slate® from Chase card, which offers 15 months of interest free financing on balance transfers, with no fee.
- Chase Slate® named 'Best Credit Card for Balance Transfers' two years in a row, MONEY® Magazine, October 2013, 2014.
- $0 introductory balance transfer fee for transfers made during the first 60 days. After that, the fee for future balance transfers is 3% of the amount transferred with a minimum of $5.
- 0% Introductory APR for 15 months on purchases and balance transfers. After the introductory period ends, a variable APR of 12.99%, 17.99%, or 22.99%.
- $0 Annual Fee
0% for 15 months*
0% for 15 months*
12.99%, 17.99%, or 22.99% Variable*
But more importantly, a cardholder that is in debt should not be looking at reward cards. As wonderful as these products are, they offer rewards for additional spending which can hurt those who have debt.
The advantage of sign up bonuses
Those who do not have credit card debt should always be looking for ways to maximize their rewards. By paying every statement balance in full, cardholders can avoid all interest charges and let banks compete for their business with rewards. For instance, there are several cards that offer rewards worth hundreds of dollars. The Chase Sapphire Preferred® card offers new applicants 40,000 Ultimate Rewards points after spending $3,000 within three months of opening a new account. These points are worth $400 as cash back, $500 in travel booked directly through Chase or 40,000 points transferred to any of its airline or hotel partners. And since points and miles can be worth several cents each when used for luxury travel or last minute airline tickets, it is possible to earn over $1,000 from a sign up bonus like this.
But what about both?
While it might seem ideal to get both a sign up bonus and a promotional financing offer, it probably isn’t. Cards with the best sign up bonus usually have no promotional financing. Likewise, the cards with the top 0% APR offers usually have no rewards. That leaves just a few cards with modest rewards and sign up bonuses.
By examining the benefits of both types of offers, credit card applicants can choose the one that best meets their own needs.