For those who carry balances on their credit cards, high interest rates result in higher monthly bills, with many seeing their minimum payment increase substantially.  Fortunately, now, more than in recent years, 0% APR credit cards offer a safe harbor from high rates.  There are two basic types of 0% APR credit cards: those that offer a 0% rate on balance transfers, and those that offer a 0% on purchases.  The best credit cards offer a 0% APR on purchases and balance transfers.  How much savings can these credit cards provide?  Let’s take a look at the math.

Let’s assume you’re carrying a balance of $10,000.  If you simply pay the minimum each month, you will accrue close to $1400 in interest over the course of a year, thanks to daily compounding balances (too bad savings accounts don’t pay that type of interest).  With a 0% APR balance transfer, you can expect to save all of that money, plus, you’ll be given time to pay down that debt.  When the 0% period expires, not only is there a chance your interest rate will be lower, but, if rates do not go down, you can always transfer the balance to another 0% credit card.  Plus, if you make a minimum payment of $150 a month, your balance at the end of the year will be closer to $8200, rather than $11,000.  That’s quite a difference.

Now, if you’re fortunate enough to have no credit card debt, a 0% interest rate can be handy tool to avoid interest expenses on new purchases and free up some cash in the short term.  Need a new fridge?  Have to fix your car?  Want granite counters for the kitchen?  With a 0% credit card, you can defer the cost of these expenses for a year while taking advantage of low interest rates. 

Of course, not everyone pays their balance in full each month.  With average credit card interest rates in the 12% to 15% range, carrying a monthly balance of only $1000 can cost close to $150 a year.  Saving $150 in interest charges may not be a fortune, but its surely enough to buy a nice dinner with a good bottle of wine.

No matter how you use your credit card, a 0% interest credit card can have a positive effect on both short and long term cash flows.  Given that the alternative is paying more than 12% in interest, choosing a 0% credit card in this atmosphere of high interest rates is a no-brainer.