Many banks and financial institutions are now offering interest free credit cards. Many are henceforth enticed with the offer, thinking that they can use this type of card without having to pay for interest of whatever they would purchase. This is an ultimate disadvantage for those who just jump into the offer without first researching carefully about interest free credit cards. In the wrong hands, an interest free credit card can turn into a financial nightmare. Here are some reasons why.
1. Interest free limited period. Just because they say that the card is zero interest doesn't mean it would remain that way forever and you can just put-off paying for your debts on this card because it does not gain interest. This is very wrong. Interest free credit cards have a limited-time offer, which means your loans and purchases using the card would only be zero interest for that length of time, which is usually three to six months starting from the day you first get the card. After this period, your debts shall incur interest, depending on what is specified in the credit plan. If you have a huge debt that you have not paid-off during the interest-free time, you are up for a big surprise once you receive your bill.
2. Credit score reduction. As we all know, a person's credit score will either increase or decrease, depending on how he manages his finances. Credit bureaus regularly check your financial information. If they have seen that you have gotten zero interest cards and are using them without thinking of your other debts, they may deem you unable to manage your finances well, hence reducing your credit rating.
3. You might end up in more debt than before. Because you are fooled by the thought of using a card that gains no interest, you may tend to overuse it. It would be good if you can pay-off your debt completely during the zero interest period, but if you could not, you would end up having more debt than before. Some people use zero interest cards to transfer their balance from their other cards so that they would be able to pay the principal of the debt and not the interest gained only. If you have the capacity to pay it off, it would be fine, but if you couldn't, then your debt may actually incur more interest.
4. You may get too lax with your payments. Delaying payments is usually the reason why many people opt for interest free credit cards. However, once they have received their first bill, they get too relaxed thinking that since their debt did not increase, they can use their money for other matters instead of paying. Paying regularly and on time are necessary for interest free credit cards to work to your advantage.
If you know how to manage your money and pay your debts regularly, interest free credit cards can work for you. If you have been having problems with this two aspects with your other credit cards, it would be better if you don't get an interest free credit card. But if you are confident that you can change how you take care of your finances, then there is no reason for you to fear interest free credit cards.