You must have seen advertisements of companies offering Zero percent interest on Credit cards, and must have wondered how will the credit card companies benefit if they give cards at absolutely no interest. Actually the zero interest on these cards is only for a limited period of time after which the rate of interest will be charged at prevailing rates of interest. The interest charged at the end of the introductory period is clearly mentioned when you are applying for the card.

This introductory period of no interest will vary depending on the card that you are using. This introductory period can vary between three months to twelve months depending on the card that you have. During this period the credit card companies will not charge any interest on the amount outstanding. It is important that you read the terms and conditions of the card before you apply for it. This is because some cards may require you to pay the minimum amount due on/before the payment date. If you default in paying the minimum amount then credit card company will charge you penalty for not paying the amount on time. This penalty can be as high as $20 on some cards.

People who intend to switch from low interest credit card to zero interest card should evaluate the financial benefits of doing so. Let me explain this with an example.

Assuming that your average credit card outstanding in your low interest credit card is 500 dollars for which the credit card company charges 12% rate of interest. This means that you pay $60 interest/year to your credit card company. If a zero percent interest card is available for no interest for six months and 24% interest after the end of the introductory period of six months then the money that you save in first six months will be lost in the interest that you pay after six months. If you have to pay annual fee then this will be an additional burden on you.

In the situation mentioned above the entire benefit of zero interest credit card is wiped off by the excess interest that you pay after the end on the introductory period. So if you applying for a zero interest credit card it will be wise on your part that you enjoy the benefit of introductory zero interest period and then transfer the outstanding to your low interest credit card. DO NOT under any circumstance close your low interest credit card just because you have a Zero interest credit card.

Zero interest credit cards will be beneficial in the long run if the interest charged after the end of the introductory period is comparable with interest rates charged by low interest credit card. So take a long term view before you plan to switch cards.