How to Pay 0% Interest on a Credit Card

The best way to avoid paying interest on a credit card is just to pay off the whole balance every month. The credit card companies will hate you. They'll call you a "deadbeat" because they won't make any money off of you. But you'll be doing great, paying nothing and maybe getting some rewards on top of it. If you play it right, you can come out ahead, and actually make money by using your credit cards.

But if you paid off your balance every month, you probably wouldn't be reading articles about how to pay less interest. Which brings us to credit cards that offer an interest rate of 0%. Though that may sound like having your cake and eating it too - being able to run a balance and at the same time paying no interest - there are some catches. (Aren't there always?)

First, the 0% rate is only temporary. Once it expires, the interest rate will go back to the card's regular rate, which can be anywhere from reasonable to extravagant, depending on your particular card offer. So you need to keep track of when the 0% rate expires.

This is where the credit card companies get tricky (well, it's one of many places where they get tricky). They usually try and hide the actual expiration date, as if they were children playing hide and seek. They will say something totally confusing like "before the first day of the billing cycle that ends in November." It is possible, if you're a patient person who enjoys puzzles, to figure out what the actual expiration date will be, especially if you keep in mind that the end of a billing cycle is not the bill's due date, even though that seems logical, but rather the date listed on the bill as the "closing date," which is a lot earlier. Probably the easiest thing to do is to figure out roughly when the interest rate will change, and then take action early - pay off the balance, or transfer it to another card with another introductory 0% rate - giving yourself a good cushion of time.

Another sneaky thing the credit card companies do is offer you their introductory 0% rate in nice big bold brightly-colored type, and then hide the transaction fee in nearly-invisible ink somewhere on the bottom on the back of the page. This fee is technically not part of the percentage rate, so the companies get to giveth with one hand and taketh away with the other. Most cards nowadays will charge you a transaction fee with their 0% offers. There are still a few that don't, but they're getting harder to find, and you probably need an exceptionally good credit rating to qualify.

An important thing to look for with transaction fees is whether there is a maximum fee. Say you had an offer with a 3% transaction fee and no maximum. If you borrowed, say, $10,000 the fee would be $300. But there are also better offers that say something like 3% fee with a $5 minimum and a $75 maximum. In that case, the fee for a $10,000 loan would only be $75, not $300, and you would actually be paying quite a bit less than 3%.

Another thing to watch out for with the fees is that if you take out a very small loan, and there is a minimum fee, then you could be paying a high percentage. Say you wanted to borrow $50, and the fee was, as in the last example, 3% with a $5 minimum and a $75 maximum. So you would be paying the $5 minimum, which would actually be 10% of your loan, not the stated 3%.

One other important thing to keep in mind is that many card companies have a nasty clause in their contracts which says that if you are late on any of your bills - not just on theirs - they can raise your rate to some insane default rate. So your beautiful 0% rate could go poof and turn into a hideous 25% penalty rate if you fall behind on another bill.

As you can see, this all gets very complicated and is fraught with pitfalls. That's by design. In recent years, the credit card companies started a deliberate strategy of trying to confuse their customers. Still, it is possible to beat the companies at their own game, and that can be quite satisfying, if you're the sort of person who doesn't mind studying fine print, setting up a system so that your bills always get paid on time (auto-payment systems help here), and paying off the bill or transferring the balance before the introductory offer expires.