In 2016 my husband and I decided to buy a new home, and this time we wanted to build. In the Washington, DC metropolitan area real estate is quite expensive. We soon learned it would be cheaper to move one hour from the capitol and buy new, versus purchasing an older home closer to the city. It took some time and research, but we were eventually able to find the right location and build a home that fit our needs. Little did I know a 0% APR credit card would become part of getting our new home.
Our efforts to stay within budget meant we could not to go overboard with design upgrades. One feature we simply could not afford was a finished basement. The builder wanted $50,000 and when you include interest over a 30-year loan, it really would have cost considerably more. Because of my work as a real estate investor, I knew we could hire a private contractor and do the job for much less.
So we closed on the loan, built our new house, and then began implementing our basement plan. First, we searched for local contractors and got three quotes. Second, we saved my husband’s annual bonus and used that money to cover ⅔ of the project’s cost. Last, I applied for a 0% APR offer from one of my credit cards. I was able to borrow $10,000 with a 0% percent interest for 12 months.
The basement took about six weeks from start to finish and ended up costing us $30,000. Once completed, I made monthly payments to my credit card to pay off the balance before the special interest rate expired. As a result of our cost-saving plan, we saved $20,000 on completing our basement and now have a portion of our house paid in full. Even better, the basement has added to the value of our home and expanded our livable square footage.
Additional Benefits of Using 0% APR Cards
Temporary 0% APR cards can help manage credit card debt
The introductory 0% APR can be a good way to manage debt.
If you have a high-interest rate credit card balances, you can save with 0% APR cards. First, stop charging purchases to the card. Next, consider transferring the balance to a card with a 0% APR. This will ensure you pay less in interest as soon as you implement the transfer.
However, it’s important that you also have a plan to pay off your debt. I recommend automatic monthly payments in the amount required to pay the balance off in full before special interest rate expires. If paying off the debt in full is not possible, pay off as much as you can before the card’s regular interest rate (normally 16% – 28%) begins.
Get a Big Purchase Today, but Pay Overtime
The special introductory rate is also a good way to pay for big purchases over time. If you really want to purchase a big ticket item and know that you will have the extra income to pay for it monthly, this could be a way to get that item today and pay for it in installments.
Normally, I would recommend you save for that big purchase. But in some cases, there are reasons to buy now and pay over time. For example, the item may be limited in quantity or something your family needs right now. For more ways to use promotional interest rates, check out Society of Grownups.
Negatives Associate with 0% Credit Card Debt
Nothing Lasts Forever
Unfortunately, the introductory rates do not last forever; and if you do not pay off the balance in the time allotted, interest will start to accrue. Secondly, if you miss just one payment your special rate can be canceled instantly. That’s why it’s important to set up monthly automatic payments or always pay at least the minimum amount due. This ensures your balance is paid down regularly and before the interest kicks in.
The “Hidden” Fee
Balance transfers are not free. Most credit cards charge a fee to transfer a balance, which is normally three percent of the balance being transferred. Alternatively, companies may charge you a flat fee if the balance being transferred is low. Read the fine print of the terms to know exactly what is the cost of moving your debt. There are other reasons to not transfer a balance. Read more of what The Balance has to say on this subject.
If You Have Bad Credit, You May Not Qualify
Sometimes, to get the 0% rate you have to open up a new credit card. If your credit score is low or your debt-to-income ratio is bad, you may not qualify for the introductory rate or balance transfers. In this case, you should learn to master your credit score. Come up with a debt payment plan and stop using your credit cards. If you are not able to stop shopping for non-necessity items, destroy the card or give it to someone you trust so it’s not available for you to use.
You Can Burden Yourself With Too Much Debt
Leveraging your credit can help you build wealth, but the key is to use it wisely. The number one rule of most investors is to use other people’s money to accomplish your business goals, but at some point, you have to pay the money back. So think twice before running up consumer debt that you cannot afford to pay off. Using a 0% APR card to just spend more money will not help your long-term wealth goals.
As with all debt, understand what you are doing and proceed with caution. Good use of debt is a key part of building wealth. But, many have ruined their finances by making the wrong moves with debt. Understand the impacts of adding more debt and make choices to move you closer to financial freedom.
What are some ways you have leveraged your credit cards or paid off credit card debt? Please share your success stories with others in the comment section below. We would love to hear from you.