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Zero-interest store credit card deals: What's the catch?

by Barbara Marquand

When you buy a big-ticket item, like a flat-screen TV or a new sofa, you might be tempted by a retailer's offer for a zero-percent credit card.

These credit card deals let you charge the purchase you were planning to make anyway without having to pay any interest for an introductory period, which might be six months to a year.

That's a great deal--but only if you follow the offer's rules. The FDIC warns consumers to be cautious, because many of these offers have a catch. If you don't pay off the entire purchase by the time the zero-interest promotional period ends, you have to pay interest from the date you bought the item, not from the expiration date of the promotional period. Retail credit cards tend to carry high interest rates, so you could end up paying more than you would have if you'd made the purchase on one of your regular credit cards. So much for the money-saving deal.

Here are some tips to avoid getting burned:

  1. Read the credit card offer rules carefully to understand exactly what you need to do to qualify for the zero-percent interest deal.
  2. Determine the interest rate you must pay after the promotional period ends. How does that compare to rates on your other credit cards? If you're not certain you can pay off the purchase during the promotional period, use your lowest rate credit card instead.
  3. Ask if the new credit card carries any costs. There's no use saving on interest only to pay a hefty annual fee.
  4. Consider saying no to credit, and tighten your belt this month to pay off the item now. Why get a credit card you don't intend to use in the future if you can pay for the item in full?
  5. Plan the payoff. If you decide to get the new credit card for the promotional deal, determine how much you need to pay each month to pay off the purchase in time -- and then stick to your commitment to avoid interest.

Used with discipline, zero-interest credit card offers can save you some money. But a better strategy for many consumers might be to budget and save for big-ticket items, so you don't have to worry about interest. Set aside a small amount each month for new household appliances or furnishings. Then when the refrigerator or stove gives out, you can draw from the fund to pay for a replacement.

Published 05/29/12 (Modified 06/01/12)

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