How to use an interest-free credit card

An interest-free or 0% credit card can help you to pay off existing debt more cheaply or spread the cost of an expensive purchase. But before you apply for this type of credit card, it’s important to know how to use it correctly to avoid unexpected fees and interest charges.

How does a 0% credit card work?

A 0% credit card is a credit card that doesn’t charge interest on balances for a set period of time. Depending on the type of card and your credit rating, the introductory 0% offer can last anywhere between six and 30 months.

Once the 0% period ends, any remaining balance is subject to interest. That’s why you ideally want to pay off your balance in full before this time.

You must keep up with your monthly repayments on a 0% credit card. If you don’t, your provider will charge late payment fees and you risk damaging your credit score. You could also lose your 0% deal.

What are the different types of interest-free credit card?

You can use interest-free credit cards for balance transfers, purchases or money transfers.

• A 0% balance transfer credit card enables you to shift over existing card debt and pay no interest on your balance for several months. You usually pay a balance transfer fee of around 3%.

• A 0% money transfer credit card lets you move money from your credit card into your bank account. You can use these funds to make purchases or pay off debts, such as loans or overdrafts. Again, a fee of around 4% applies.

• A 0% purchase credit card lets you spread the cost of purchases interest-free over several months.  

Read more: 

• What does 0% interest mean?

• Will 0% interest cards hurt your credit score?

Pros and cons of a 0% credit card

Before deciding whether a 0% credit card is right for you, it’s sensible to weigh up their pros and cons. 

Pros

• Low cost: An interest-free credit card can be a cheap way to pay off what you owe in balance transfers and purchases. You only need to repay what you’ve borrowed as you your card provider won’t charge interest on top

• Pay off debt faster: Because you're not charged interest, you can pay off your balance transfers and purchases more quickly

• More affordable: Interest free credit cards can make your repayments more affordable and give you more time to pay off your debt

Cons

• Interest kicks in when 0% deal ends: If you haven’t cleared your balance by the time the interest-free period ends, interest kicks in at a much higher rate. This can make your repayments significantly more expensive. It can also take you longer to clear your debt

• Fees: Many balance transfer and money transfer credit cards charge fees of around 2% to 4%. Your card provider adds this to your balance

• Temptation to spend: Having an interest-free credit card can encourage you to spend more than you need. Only spend what you can afford to repay

Using an interest-free credit card for purchases

A 0% purchase credit card can help you spread the cost of a large purchase you might otherwise struggle to afford. You could use your card to pay for new furniture, a car, or a holiday, for example.

As long as you clear your balance before the 0% offer ends, you won’t pay any interest on your credit card purchases.

How to manage payments on an interest-free credit card

When you’re using a 0% credit card, follow the tips below to avoid fees and other charges.

Work out how much you need to pay each month

It’s important to repay your balance in full before the interest-free offer ends. To work out how much you need to repay each month to achieve this, divide your total balance by the number of interest-free months.

For example, if you have a £2,000 balance and a 0% offer for 20 months, you need to repay £100 a month to achieve your goal.

Set up a Direct Debit

Once you’ve worked out the above sum, set up a Direct Debit to pay off this amount each month (or at least the minimum monthly repayment). This ensures you never miss a payment. 

Avoid cash withdrawals 

Be aware that your 0% introductory offer doesn’t cover cash withdrawals. Any cash withdrawals you make with your credit card attract interest from the date of the transaction – even if you pay off the balance in full that month. You also need to pay a cash withdrawal fee of around 2.75%. 

All in all, this makes credit card cash withdrawals very expensive, so they are best avoided. 

Avoid spending more than you can afford

Because your credit card is interest free, there’s a temptation to spend more. But, as with any form of credit, you should only spend what you can afford to repay.

Consider another balance transfer 

If you can’t clear your balance by the time the introductory 0% offer has expired, you might need to shift it to another 0% balance transfer card. However, this often means paying another balance transfer fee, so you should consider it carefully.

Read more: 

• What happens when you don’t pay off the balance on an interest free credit card?

• What happens when the interest-free period ends?

• How many balance transfers can you do?