by Taylor J. Kovar – CEO/Founder, Kovar Wealth Management

 

–Hi Taylor – My husband and I are in the midst of a debate, so I’m hoping you’ll play tiebreaker. I want to get a new credit card with 0% APR for a year to buy a new computer; he thinks it’s a scam, and it’ll cost us extra in the long run. Who’s right?

 

–Hey Kelly – Putting me in the hot seat! Fortunately, I can answer this pretty easily because you’re both right and you’re both wrong. Now that I’ve gotten the wishy-washy answer out of the way, I’ll lay out some info that you can use in your discussions.

 

  1. Zero APR is good. Paying zero interest is always good. If you can borrow $10 for a year, then pay back $10 a year later, you’ve done well for yourself. Of course, that’s looking at APR in a vacuum that very much doesn’t exist when it comes to lending. Interest makes the world go round, which is why your husband rightly doesn’t trust the zero APR offer. The answer lies in the fine print and what kind of transaction fees, early repayment fees, and annual fees might be lurking behind the enormous 0% APR FOR 12 MONTHS! banner.
  2. How the APR is applied. The most common trick from creditors is to offer 0% APR but only for one specific type of transaction, like purchases or balance transfers. If the card you’re looking at gives a year without interest on purchases and you only plan to buy one computer and nothing else, you could conceivably make use of that card and not spend anything above the purchase price. If the interest-free period only applies to balance transfers or you plan to also take out cash advances, things won’t work as well. Also, know that making a late payment or exceeding your credit limit might bring everything tumbling down.
  3. What comes next? This is the big question. While you might be spot on about the 0% APR aspect, you have to look ahead and decide what’s next. Will you keep using this card? Will you cancel it immediately and take a quick hit on your credit score? Will you let it sit unused and eventually take the credit hit anyway? Are there other perks that make the card worth having if you spend sparingly and pay off the balance in full every month? Short term, zero interest will help you buy a computer; in doing so, will you be creating problems for yourself down the road?

 

Now I leave the rest of the debate to you and your husband. I ask that you not blame me if anything goes wrong, but I will take credit when you end up feeling like you’ve made the right decision. Good luck!