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Zero interest credit cards quickly melt down

Broderick Perkins ERATE writer

by Broderick Perkins

(6/9/10) Once a useful tool to pay down or pay off debts, zero interest rate credit cards have always been ticking time bombs.

Now the fuse is shorter and the blowout bigger.

During the housing and accompanying financial boom, when credit flowed like water, credit card companies routinely flooded the market with offers for zero interest credit cards with a nothing rate could last a year or more.

Credit card issuers were obviously trying to win over new customers because those who accepted the zero-down deals had to transfer a balance, to which the goose egg rate was applied.

Typically, higher rates were attached to subsequent purchases, cash withdrawals and other transactions, but the length of the deal made the cards useful for savvy consumers.

Wise credit card holders who had a balance on an old card with any interest rate could stop the clock on extra finance charges and pay off the bill -- interest free, provided he or she stuck to the original zero interest rules and paid off before the rate expired.

For years, the zero interest deals just kept coming, allowing those who couldn't finish paying off balances with one zero-down card to swap it out, again and again, for another and another.

The party's over, but some consumers are still hooked on the gambit.

Unlike the zero interest cards of years gone by today's cards often start out with balance transfer fees as high as 5 percent of the amount transferred. That's $250 on a $5,000 transfer fee.

"When you read the fine print, they have a charge of 3 percent or 4 percent on the transfer. How can you have an upfront transfer fee and state that your initial annual percentage rate (APR) is 0 percent," asks Jeff Howard, CEO of, a Santa Clara, CA-based financial information publisher and interest rate tracker since 1999.

Oh, but there's more. Gone is the lengthy zero interest rate term and other perks.

"Zero percent APR offers from credit card issuers are not what they seem. Typically your rate will increase after six months. And your rate could go up even more if you increase your balance on another account. Even worse, if you are late making a monthly payment, your rate could climb to 30 percent," according to the Center For Responsible Lending.

There are more ways zero interest rate cards can leave you, well, with zero.

• Bait and switch. The offer may indicate that you are approved, but if you don't get the final okay, the issuer will offer you another "deal" perhaps with a higher, variable rate.

• More for purchases. Chances are purchases will come with a higher rate. If you really need to use a credit card for purchases, find a better deal on a card just for purchases.

• Credit dings. For consumers hooked on plastic, the shorter zero interest periods terms could force them to go to the next zero interest deal more often and that can affect their credit ratings and make issuers reluctant to take on the consumers at any rate.

The only true interest free credit card is the one you pay off each month.

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