When choosing a credit card, most of us pay attention to the welcome bonus in points or cash back, but rarely notice the introductory 0% APR on purchases and Balance Transfers that may come with a new card. We previously introduced 0% APR purchases and Balance Transfer ("BT" for short). Today, let’s talk about how to use them in practice.
[Updated 2020.4] During the pandemic, some people may have run into cash-flow difficulties. In that situation, making good use of a credit card’s 0% APR on purchases and Balance Transfers can be a great way to access low-cost or even no-cost cash without paying interest. In this article, we’ll share how to use these 0% APR offers and what to watch out for. At the end, we’ll also recommend a few credit cards that are good for 0% APR strategies.
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Introduction to 0% APR
A 0% APR offer is essentially like financing your purchases at 0 interest. As long as you make the bank’s required minimum payment, you can choose when to pay back the balance during the promotional period and spend ahead of time. Banks often offer this perk when you open a new credit card account as an incentive to use the card. After the 0% APR period ends, the card usually reverts to a variable APR of around 15% to 20%.
Unlike many Americans who are comfortable spending in advance and carrying debt, Chinese people in the U.S. tend to have better repayment habits, so they rarely pay interest to banks. But if you plan your repayment well and keep your cash flow balanced, using a credit card’s 0% APR for purchases and BT can also be a way to improve cash flow and solve short-term funding needs.
That said, you need to be especially careful when using 0% APR offers. If you are not careful, you may end up being charged a lot of interest. Below, we will explain in detail how to use 0% APR purchase offers and BT offers.
How to Use 0% APR on Purchases
A typical 0% APR offer is often part of a credit card’s welcome bonus package. Credit card issuers usually provide a 0% APR period, and depending on the issuer, this period is generally between 12 and 18 months. During this time, all purchases made on the card carry a 0% interest rate.
How to use it
Simply use the card for normal spending. When it comes time to pay, as long as you meet the minimum payment each month, you can comfortably owe the credit card company money for more than a year.
- Large bills: tuition (at schools that do not charge a fee for credit card payments); auto insurance (pay six months up front to get the insurer’s discount, then pay the card off gradually yourself)
- Reselling, nurses: use a 0% APR credit card to buy things, then pay it off in one shot once your cash comes back.
- A clever use of Plastiq: Generally speaking, bills from government agencies (utilities), school tuition, rent, mortgages, and car loans either cannot be paid directly by credit card or come with high fees if paid by card. To take advantage of a card’s 0% APR, we can approach it from another angle and use a credit card through Plastiq to pay those bills. See: Plastiq Guide
Repayment
Monthly payments: Even though your APR is 0%, you still need to make the minimum payment on the card every month. Otherwise, not only will you have to pay a high late fee, but the issuer also has the right to cancel your 0% APR.
Pay it off early: The 0% APR expiration date does not necessarily line up with your statement date. You must pay off the entire balance before the 0% APR period expires, not just before that statement. So it is best to confirm the exact expiration date with customer service and pay everything off a bit early. I recommend paying off the full balance before the statement closing date right before the end of the 0% APR period.
For a more detailed discussion of when to pay, see: The 0% APR portion and the no-grace-period portion of when you should pay your credit card bill
How to Use 0% APR Balance Transfers
For the basics of Balance Transfers, see: Introduction to Balance Transfers
How to use it
The premise of using BT is that you are short on available cash. Common uses include:
- Reduce interest: transfer a balance to a 0% APR card from a card with a high APR to reduce interest.
- Earn bank account bonuses: a Citi banking account bonus of 400 for depositing 15,000; a Chase Saving bonus of 200 for depositing 10,000. If you do not have that much available cash on hand, but you have BT offers on Slate and Freedom, you may be able to cash out with no fee and earn the bank account bonus.
- Indirectly earn rewards: use Plastiq together with a credit card that has a strong large-purchase bonus category to meet minimum spending for a welcome offer, then use a 0% APR card to delay repayment. You can also put a large purchase on a high-APR, high-rewards card first, then transfer that balance to a 0% APR card.
BT steps
Applying for a BT: Tell the bank the BT destination credit card number (it cannot be a credit card from the same bank). The bank usually needs about a week to process the BT request. If you use a Discover card for BT, you can also transfer the money directly to its checking account. If the bank mails you a BT promotional check, you can also deposit that check directly into a checking account.
Cashing out: If the recipient of the BT is a credit card company, you can call and ask the receiving credit card to refund the negative balance. (Chase, Discover, and AMEX generally have no problem with a few thousand dollars.) The bank will then mail you a check, which you can deposit after you receive it. In addition, AMEX can also do a wire transfer; you will need to provide the routing number and account number. AMEX does not charge a fee, but be aware of any fees charged by the receiving bank.
Repayment
Repayment is exactly the same as with a 0% APR purchase offer: make the minimum payment every month and pay it off early.
Things to watch out for
What happens if you keep spending after a BT: For a card that has a BT balance, if the purchase APR is not 0%, it is best not to continue making purchases on that card. Depending on the issuer’s rules, if you make purchases after a BT, you may have to pay off everything before you can avoid interest. Based on communication with the card issuers:
- Chase will cause you to lose the grace period. In other words, if your purchase APR is not 0%, then after the statement closes you must pay immediately, or pay off the purchase balance before statement close, in order to avoid interest.
- Discover will charge interest directly on the portion of your purchases that is not at 0% APR, even if you pay off the high-APR portion before statement close.
BT rules: During the BT process, pay attention to the following:
- Whether the 0% APR BT offer allows only one BT during the promotional period or multiple BTs.
- BTs may also come with a Transfer Fee, and different credit cards charge differently. It is generally around 0% to 3%.
For example, suppose issuer A offers BTs made within 30 days of opening the card with a 2% fee and a 12-month 0% APR period. If you apply for a 3000 USD BT within 30 days of opening the card, then after the BT succeeds you owe the credit card company 3000 * (1.02) = 3060 USD. If you pay it off within 12 months, there is no interest; if you go beyond 12 months, then you will need to pay interest. Even though 30 days later the balance on your card may still be under 0% APR through month 11, if you make a new BT, that new BT may not have 0% APR.
BT limits: A BT generally cannot exceed your current credit limit, and banks may also impose other restrictions, such as a cap on total BTs within 30 days.
The Impact of Using 0% APR on Your Credit Score
Credit profile after a BT: People who use a BT generally tend to max it out in one shot. That means you may end up holding 2–3 credit cards with balances above 90%. The chart below shows how a credit score changed over a year and a half after two rounds of 0 Purchase/BT APR. You can see that after opening the card in April and using the 0 APR offer, the credit score dropped by about 50 points. After that, only the minimum payment was made through the end of the year. During that period, there were also events such as taking out an auto loan, but no new credit cards were opened, so the overall score rose only slowly. In the second year, repayment accelerated, and a few more credit cards were also opened. By June, the balance had been fully paid off, and the credit score had completely recovered to its pre-application level. One or two cards with high balances did not have much impact on applying for new cards or an auto loan.
The effect after a 0 APR purchase is similar, because the score drop is essentially caused by a high balance, and once the balance is paid down, the score rises again.
Credit cards suitable for 0% APR strategies
Opening a new card
If you are a beginner and want to try a 0 APR Purchase offer, whether it is Chase Freedom, Discover it, or another mainstream beginner credit card, they can all meet your spending, rewards, and installment needs. You just need to choose the card that fits your spending pattern. Since both new-card purchase offers and BT offers are at 0 APR, you also do not need to worry that using a BT will prevent you from continuing to spend on the card.
Below are some good cards suitable for 0 APR strategies:
| Card | Purchase 0 APR | BT 0 APR | BT Fee | Welcome bonus | Application link |
|---|---|---|---|---|---|
| Chase Slate | 15 month | 15 month | 0% | NA | 0 Fee BT, no annual fee |
| Chase Freedom | 15 month | 15 month | 5% | 20,000 UR | No annual fee, quarterly 5x |
| Chase Freedom Unlimited | 15 month | 15 month | 5% | 20,000 UR | 1.5x on all purchases |
| Discover it | 14 month | 14 month | 3%（within 60 days）/5%（afterward） | $50 | Quarterly 5%, Cashback Match |
| Citi Double Cash | 18 month | 18 month | 3% | NA | No annual fee, 2% cash back on everything |
| BofA 123 | 12 month | 12 month | 3% | $200 | No annual fee, 3-2-1 |
| Citi Simplicity | 12 month | 21 month | 5% | NA | Very long 21-month 0 APR |
| Citi Diamond Preferred | 12 month | 21 month | 5% | NA | Very long 21-month 0 APR |
| AMEX EveryDay | 12 month | 12 month | 0%（within 60 days） | 10,000 MR | No annual fee, 2.4x at supermarkets |
| AMEX EveryDay Preferred | 12 month | 12 month | 3% | 15,000 MR | Annual fee. 4.5x at supermarkets |
| AMEX Blue Cash Everyday | 15 month | 15 month | 3% | $150 | No annual fee, 3% at supermarkets |
| AMEX Blue Cash Preferred | 12 month | 12 month | 3% | $250 | Annual fee, % cash back at supermarkets |
| This table was updated on 2020.4.7. For actual APR periods and welcome bonuses, please refer to the application page. |
Chase Slate is completely free of BT fees. After approval, if you also have other Chase cards, you can reallocate credit limits, which makes it suitable for doing a BT on a new card and then leaving it unused. After paying it off, you can also convert it to Freedom. Although Freedom has a 0 APR BT offer when opened, it charges a 5% fee, so it is not very useful.
AMEX EveryDay Card currently also has a 0 fee BT offer and can be used well. Likewise, AMEX also allows credit-limit reallocation and product changes.
Offers on existing cards
Some credit cards that you are already using may also receive 0% APR BT Offer (YMMV). Whether these offers appear depends largely on your spending habits and credit history. Examples include:
- Chase Freedom: Often the best value. They may mail you checks, and you can also check your BT Offer in your online account. Sometimes a 0 APR 0 Fee offer appears.
- Discover it: Online, it may give you two options: one is 18 months with 0 Fee and a low APR (4.99%), and the other is 12 months with 0 APR and a 3% fee.
- BofA: 18 month 0 APR, 3% Fee
Of course, existing cards generally do not come with a 0 APR purchase offer, so after doing a BT, do not keep using that card for shopping.