How to Use Credit Cards for No-Interest Loans

Even when interest rates are low, the rates for personal loans or unsecured loans remain relatively high. And not everyone owns a home or has enough ownership equity to be able to tap into a home-equity line of credit or second mortgage. So if you need a loan to consolidate debt or pay for a remodeling project, one avenue to consider is using a credit card with a no-interest introductory period.

Difficulty: Moderately Easy

Instructions

1. Most people receive multiple credit card offers in the mail, so look through these before throwing them out to see if one fits your needs. If you don't find the right offer in the mail, other places to look include bank websites, credit card comparison websites and advertisements in newspapers and magazines.

2. Make sure you find a card that fits your needs. For instance, if you need to borrow $5,000 but can't afford to pay more than $500 a month, a card with a six-month no-interest introductory period won't work. Many cards offer no-interest periods of up to one year, and some may go as long as 15 or 18 months.

3. Once you have found a card that meets your needs, check your credit score before applying. Most credit cards will require you to have a good credit score to get the best terms. You usually have to pay to get your actual credit score from the credit-reporting agencies, but there are websites where you can plug in variables and get an estimate of your score. Usually, a score above 650 is good enough, but some cards might require scores as high as 720 to get the best rates.

4. Make sure to follow all terms. Always pay on time, because if you are late with a payment you'll not only be hit with fees and finance charges, but you will also likely lose your zero-percent interest. Make sure to make at least the minimum payment every month; this is another pitfall that could cause you to lose your zero-percent rate. Also, only use the card for the purpose that is covered by the no-interest offer. If the card offers no interest only on balance transfers and you also use it for purchases, your payments will go toward the no-interest portion of the debt first, leaving you accruing finance charges on the purchases until the no-interest balance transfer is paid off.

5. Be disciplined. Treat the card the same way you would a loan. Pay the required payment every month, and make sure it arrives on time. If possible, set up automatic payment through your bank. If you don't think you can resist the temptation to use the card, cut it up when it arrives or have a trusted friend or relative hold on to it.

Tips & Warnings

• If transferring a balance, look for a card that has a no-balance transfer fee or one that has a maximum fee. Otherwise, you could pay hundreds of dollars in fees and defeat the purpose of having zero-percent interest. Always make the most current payment on the debt you are transferring; that way, if there is a snag in processing or you aren't approved, you don't wind up with a late payment. If you start to think you won't get the debt paid off before the no-interest period expires, start looking for another no-interest credit card offer so you can transfer the balance and avoid paying interest.
• Your credit score could take a minor hit from all the applications if you get new credit cards to use as loans often. That's another reason it's important to have a good credit score.

Resources

• Compare credit cards
• Find no-interest cards
• Estimate your credit score

Who Can Help Sponsored

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