0% Interest: a wais Tool or Financial Trap?
"It is 0% interest, why is he even worried about paying it off?"This was a real quote someone said about me. Your reaction to this depends on where you are on the Wais Scale.Waisling – The Beginner. You’re just getting started with money. Maybe you’ve never budgeted before. Maybe you don’t save much money. Maybe you opened a few credit cards or maybe you’re in some level of debt. No judgement here. You’ve got questions – and this is the first step on your journey.
WaisMate – The Balancer. You’re doing a solid job. You follow a budget. You save money for the future. You might not know all the tricks yet, but you have a good foundation.
WaisByte – The Strategist. You’re like me and don’t just manage money, you optimize it (maybe even to a fault). Maybe you’ve got a complicated spreadsheet. Maybe you’ve got a well-diversified investment portfolio.
Waislings, you might even agree with that quote above. It might sound like free money and you might think is he just overthinking it? WaisMates and my fellow WaisBytes, you might be thinking it’s a good idea since you’re disciplined and know that you’ll pay off the balance on time before the interest kicks in. Let’s dig into this and really decide: is this a good tool or is this a financial trap?
🛠 What Is 0% Interest?
Let’s start with a definition. When a credit card offers a 0% interest rate, this is temporary. It is usually for a set period that can be several months or even years long. During this time, you won’t be charged interest on a balance you carry on the credit card (this could apply to new purchases, balance transfers, or both). So, for example, you could choose to buy a fancy new couch and pay it off over 18 months without any interest. If you don’t pay it off when the interest-free period ends, you’ll start accruing interest at a double-digit rate OR in the worst case you might have to pay any interest that had accumulated up until that point.
In the early 2000s, 0% introductory APR promotional offers became more widespread. These were initially used to attract new customers and to encourage balance transfers from other credit card companies. In the mid-2000s, they became very popular and the intro offers not only included balance transfers but also covered new purchases. These promotional offers ended up being very profitable to these companies. According to data from the Consumer Financial Protection Bureau in 2020, 20% of people actually failed to pay off their balance in full ☹ This is how the credit card companies make money of these offers! When people fail to pay the full balance, they can make money off the balance that remains.
✅ When It’s a Good Idea
So, is 0% interest bad? Actually, no – it’s a powerful tool, if you know how to use it.
Balance Transfer. If you have a credit card with a high monthly interest, transferring it to a 0% interest card could be what you need to give yourself some relief and make progress paying down debt.
For WaisByte Eyes Only: some cards have a balance transfer of 3-4%. If you have a low interest card or have a high 0% interest balance on another card, don’t pay the balance transfer fee! Try spending only on your new 0% interest card while you aggressively pay off the other balances. I’ve personally used this method and it’s essentially a balance transfer with some extra work but no fees.
Financing large purchases over time. You can buy something (that you hopefully could have paid for in full) and pay it overtime so you have more flexibility in what you can spend on or have more cash on hand.
Pro tip: You could choose to grow the cash you would have spent through investing or by keeping it in a high yield savings account.
🧠 My Story: The WaisByte Who Thought He Could Balance It All
Despite those pros, I’ve personally come to decide that 0% APR is a financial trap. Like my fellow WaisBytes who likely live and breathe spreadsheets, I’ve spent a lot of time balancing different credit cards, making sure that I pay off the different balances I had before the interest free period ends.
Last year, I received an 18-month 0% APR intro offer for the Chase Freedom Unlimited card. At the time, I had a large interest-free balance on a Bank of America card, I was trying to buy a new couch, and my ex had a personal loan with a 24% interest rate (I didn’t know she had signed herself up for a loan that bad). I decided to put all spending on this new card for a few months, pay down the Bank of America card, and pay off the personal loan with the new card as well. I successfully transferred a bunch of bad debt to this new credit card and I was pleased with myself.
But life, as always, had other plans. And they came with receipts. With birthdays, vacations, more expenses that came up and even more things that were financed, I found myself drowning. The more I had financed, the more my monthly payment had to be to make sure I was on track to pay it off by the due date. The higher the monthly payments going to debt were, the less money I had to spend on other things so this lead to more things needing to be financed. At a certain point, no amount of juggling in a spreadsheet and moving things around can help this. Even though I thought I had made some good money moves, at the end of the day, I still had a large balance that needed to be paid off. This is why I think it’s a trap. Things can add up really easily, really quickly and all of a sudden the interest-free period ends.
🧭 The Wais Scale Guide to 0% APR
As for my recommendation, if you are a
Waisling – avoid this, you might fall into the 20% of people that can’t pay it off in time and end up paying more!
WaisMate – Use this with intention, always use auto pay and include it in your budget
WaisByte – Use this to get fancy with debt payoff or grow your money smartly
Always be flexible and don’t take on more than you can handle. As for me, I plan on being on an interest-free-free period for at least 18 months.
