Saving Money in the household: 0% credit cards guide



Helping you to save money at home: 0% credit?
The recession tightens its grip. But can we keep our home finances in order? Used with the correct intentions, and paid back in good time, zero percent cards can make life a little easier -- after all, you can't get a better interest rate than free!

Let's start with the basics, and as you read on, I'll touch on how there are some advanced strategies for using 0% credit cards to maximize the financial benefit to you!


0% credit cards, played right, might be able to help
The credit card companies still offer some great 0% deals, even in the recession we find ourselves in. But be careful! Nobody is advocating that you should be spending money you don't have, and have no hope of paying back.


My simple advice: 0% doesn't mean free credit forever!
Heed this by NOT habitually spending on a 0% card unless you can pay off, at the very least, the minimum payment, in full, by the end of each month. Simply making just the minimum payments whilst the 0% deal is in place will lead to a nasty bunch of interest payments when the zero percent deal ends, unless you are either to:
a) Have a good enough credit rating at the end of your 0% period to facilitate getting another card with a 0% on balance transfers deal.
b) Pay off the balance, in full, before the 0% introductory period ends.


If you are considering getting a 0% credit card:
Aim to pay off ALL of the debt BEFORE the 0% deal ends; there's no such thing as a free lunch. The credit card companies are hoping you will roll over into the APR period that follows the 0% period, and you will pay them handsomely if you do that!

Understand the credit card 'game' before you start
Knowing how the industry works will help you to avoid the potential pitfalls. Do credit card companies offer us 0% deals out of the goodness of their hearts? Of course not -- they are run as a business, and they really don't care about your current personal or financial situation, other than to be satisfied that you are have a reasonable chance of not defaulting on your debts!
Knowing why you want / need a credit card is important
Really. Is it because you can use it as tool to help you manage your finances at home, and can you easily pay back the debt, or is it because there simply isn't enough money to go around at the moment, and you are waiting for a miracle to happen?


Credit rating
It's vital to realise that, when you apply for a credit card, this will leave a mark on your credit rating with the agencies that every lender uses to check up on you when you apply for credit. Too many credit searches in a short period really doesn't look good to lenders, and you could end up in a spiral of rejected applications: you get rejected, so you apply again, which leaves a mark on your credit record, so you get rejected for more credit -- and so on...



Check you credit score before you apply!
Though looking at your credit rating file (the same one that all the lenders look at before they decide how creditworthy you are), in my opinion, should be free, you usually will have to pay to see your own credit file. However, some companies are currently offering free, limited time deals where you can view your credit file for free. You do have to sign up (ironically with a credit or debit card (Experian)), but if you cancel within 30 days, there are no charges to pay in the recent offer. Don't forget to cancel, though -- its easily done. This way, you can avoid the rejection cycle by making sure your credit history is in reasonable order and that you have a good credit score before you start making applications for any kind of credit.

Using price comparison websites when looking for a deal:
Always remember the most recommended deals are often based on who pays the most commission to the website. It's recommended that you verify any credit card deal quite separately to make sure its the best deal for you.

Word of mouth is still valid!
Ask your friends and family if they have a credit card that they have used that they can personally recommend. This can be a useful starting point.


Credit card debt: Frequently asked questions

> Can I get a credit card if I have a low credit score?

You likely can, but you really should be asking lots of questions, and possibly taking advice, on whether this would be a solution to your cashflow, or simply making it worse. As a general rule, you will be charged a premium for taking out debt when your credit score is not as good as you would like it to be. The advice is generally to avoid taking out more debt when your credit rating is already low -- its expensive, and may cause more problems than it solves!

> How long does it take to get a credit card loan decision?

There are companies that promise to deliver a decision on your credit application within minutes, either on the telephone, or online. Don't be in too much of a hurry, however. It's far more important to seek out the best deals (longest lowest interest rate) and to have researched your credit rating before you rush ahead making credit applications!

> How do I know if my credit score is any good?

As a guide, the average US credit score is around 700 (694, in fact). You can contact companies like Experian (there are others, like Equifax and Transunion) and for a fee you can view your credit file on the internet, check your current credit score, and see how attractive you are to lenders. The higher your credit score, the more likely it is that you will be offered a decent interest rate. The horrible irony is that as your credit score sinks, and you could do with a better interest rate still, you actually have to pay more for the money you borrow! As my old nan used to say, "money goes to money"

> How can I calculate what the minimum monthly payments on my credit card will be?

This does depend somewhat on the lender, and there have been recent changes to the regulations to make the minimum payments on your credit card more standardized throughout the industry. The absolute best answer is to seek out someone who works for the credit card you intend to be with who understands the current rate of interest, the terms, and the fees involved, and ask them directly, even if you use hypothetical amounts of money that you might borrow as an example.

But I can offer a crude, rule of thumb calculation to give you some idea before you do that:

MINIMUM REPAYMENT = (at least)1% of the balance + current month interest + default charges + annual fee

If you prefer it in words:
Your minimum repayment guide will be at least 1% of the outstanding balance. Then you add the current month's interest, PLUS default charges and the annual fee goes on top of that.



For more, see my dedicated credit card debt FAQ page, where I answer more questions like:
Should I transfer the balance on my credit card?
Do I need PPI (Payment protection insurance)? My credit card company is trying to sell it to me!
Should I transfer the balance of one credit card to another?
What do I do if I can't afford to make the minimum payment on my credit card this month?
Help! My credit card company is threatening me because I didn't pay on time!
I've heard someone say I can make money by credit card stoozing. What is that?



See also: 7 ways to save money in 2014
Enter the costingless 0% credit card contest here.