When you open a credit card with a 0% introductory APR, it may appear that there is no downside to carrying a balance. After all, you won’t be required to pay interest during the promotional period. So, what’s the big deal?
Even if your balance isn’t earning interest, failing to make payments can have serious consequences, including the termination of your offer. Before leaving a balance on your credit card, carefully consider your options. It is up to you whether you should carry a balance during the promotional period of your credit card.
Why keep a balance during your introductory APR period?
While carrying a balance is not always a good idea, there are some situations where it may be the best option for you.
You’re transferring a balance from a credit card with a high interest rate
Assume you have a large balance on a credit card with a high interest rate that you are struggling to pay off. If you keep the balance on the card, you’ll end up paying a lot of interest over time. Transferring the balance to a card with a 0% APR allows you to pay off some of your balance each month without incurring additional interest. Carrying a balance on your 0% APR card and gradually paying it down is a great way to save money on interest in this case.
Just make sure you have a plan in place to pay off the majority of your balance before the intro APR period expires. When it does, you must begin paying the regular APR on the remaining balance.
You need to make a large purchase that you won’t be able to pay off right away
Similarly, you may need to spend money on something large that you require right away, such as having your car’s transmission repaired. Charging it to a new 0% APR credit card allows you to pay it off monthly without accruing interest.
Carrying a balance on something you need time to pay for is a good use of a 0% intro APR offer — but only in an emergency. If the purchase isn’t absolutely necessary right now, it’s better to save up for it rather than putting it on a credit card, even if it has a zero-interest offer.
Consequences of carrying a balance
Now that we’ve covered some of the benefits of carrying a balance, let’s look at some of the drawbacks.
You must continue to make minimum payments (and pay on time)
It’s important to remember that a 0% introductory APR does not allow you to carry a balance on your until the promotional period expires. You must still make the minimum payments. If you miss a minimum payment for an extended period of time, your promotional period may be terminated and you may be charged a penalty APR.
Some introductory APR offers are only available for purchases or balance transfers, not both
It’s critical to understand the type of 0% intro APR offer you have. While many intro APR cards, such as the BankAmericard® credit card and the Chase Freedom Unlimited®*, offer a promotional period for both balance transfers and purchases, others only offer one or the other.
The Citi® Double Cash Card, on the other hand, allows you to transfer a balance and pay a 0% intro APR for 18 months (18.24 percent to 28.24 percent variable APR after that), but there is no intro APR for purchases, so any new charges to your card will accrue interest.
If your card has an introductory APR period that is only for purchases or balance transfers, use it for that purpose only until your intended balance (whether it’s a balance transferred from a high-interest credit card or the cost of that new refrigerator) is paid off in full.
You risk losing your grace period
Carrying a balance during the 0% APR period may result in the loss of your grace period, depending on the terms of your card. Your grace period is the time between the end of your billing cycle and your payment due date during which you are not required to pay interest — but only if you have not previously carried a balance from month to month.
Carrying a balance on some cards that offer a 0% introductory APR on balance transfers results in the loss of the grace period for purchases. You must pay off your statement balance, including the amount transferred, by the due date to avoid paying interest on purchases.
Some balance-transfer credit cards provide additional benefits
Some credit cards provide additional benefits that can assist you in managing your balance. For example, the Chase Slate EdgeSM offers a 0% intro APR on purchases and balance transfers for 18 months (18.74 percent to 27.49 percent variable APR thereafter). In addition, the Slate Edge card offers a 2% APR reduction if you spend $1,000 by your next account anniversary and make on-time payments. When you pay on time and spend $500 in your first six months with the Slate Edge, you will receive an automatic, one-time review for a higher credit limit.
What effect does carrying a balance have on your credit?
Carrying a balance is said to be a good way to build credit. This is merely a myth. Credit card companies report to credit bureaus the balance that appears on your statement. Whether you pay the entire amount or carry some over to the next month has no effect on the number reported for that month. Furthermore, a FICO score does not take into account whether you have a balance on your account.
Carrying a balance, therefore, does not help your credit and may actually harm it. This is due to the fact that carrying a balance on your card raises your credit utilization ratio, which is the amount you owe on revolving accounts (such as credit cards) in comparison to your credit limit. A good rule of thumb is to borrow no more than 30% of your credit limit because a higher ratio can harm your credit score.
In addition to increasing your credit utilization ratio, carrying any balance that isn’t covered by a promotional 0% APR results in interest charges, which means you end up paying more for the things you buy. Allowing interest to accumulate may make it more difficult to keep up with your payments and may increase the likelihood that you will be unable to make your minimum payment on time. In addition, missing or late payments can lower your credit score.
How to Pay Off Your Debt During Your Introductory APR Period
Paying off your entire balance each month is easier if you create a budget before you use your card. Charge purchases to your credit card only when you have enough money in your budget to pay them off completely.
Your credit card company is required to send you a statement at least 21 days before your payment is due. When you receive your statement, read it as soon as possible. Check the due date of your payment and decide how you will make it. You can pay using the credit card company’s mobile app or website, by phone, or by mailing a check.
Making your payment as soon as possible can help ensure that you don’t miss the due date and incur late fees or a penalty APR. If you need to postpone a payment, you can set up a reminder email or a phone notification to notify you when the due date approaches.
Keep in mind that if you had a balance up to this point, you may have been charged interest from the date of your statement until the credit card company received your payment, which is known as residual interest. If your cardholder agreement states that residual interest is applicable, you should make your payment as soon as possible to reduce the amount of interest you must pay.
Setting up autopay, which automatically transfers money from your bank account to your credit card issuer each month, can make paying your balance almost effortless. You should still monitor your credit card balance to ensure that the funds in your bank account are sufficient to cover it.
What happens when your introductory APR period expires?
If you choose to carry a balance during a 0% APR period, you must keep track of when the promotional period ends. Following the end of the promotional period, your credit card company will begin charging interest on balances that were previously covered by the 0% promotional rate. When you use the card in the future, you will be charged the current APR listed on your statement.
There are valid reasons to carry a balance during a 0% APR period, such as when paying off a balance from another card or making a large purchase. Carrying a balance during a 0% APR period, on the other hand, can result in unexpected interest charges or fees if you don’t read the fine print and closely monitor your card usage.
Keeping a balance on your card from month to month may increase your credit utilization ratio and harm your credit score. As a result, the sooner you pay off your balance, the better.