Standing in the Apple store getting ready to swipe my credit card for a $1,200 new laptop, I began having an “angel on one shoulder, devil on the other” inner debate about how to pay the bill.
The card I planned to use offered 0-percent APR on new purchases for 10 months, which meant I could avoid paying interest, so long as the balance was paid off before the promo period ended. And yet, the idea of revolving debt just felt wrong. I’d never done it before; did I really want to start now?
At the same time, I’d recently made the switch from being a regular employee with a steady paycheck to a freelancer. The adjustment to irregular cash flow had been expected, but the amount of time it took some clients to pay up put me in a liquidity crunch. Carrying a balance for a least a month or two could ease that pressure until a few checks cleared.
The minute I swiped my card, I made a decision: I’d pay it off right away. It was far too ingrained in my money personality to pay my credit card bill on time and in full.
It got me thinking, though—enough to tap a couple Certified Financial Planners to weigh in. Is it ever actually advisable to revolve a balance?
Of course, you should avoid carrying a balance at all costs if you have to pay interest. It could be different, however, if you have access to a 0-percent offer as I did: “I’d rather have [someone take advantage of] that than use all their savings to pay for a big purchase,” says Sophia Bera, a Certified Financial Planner and founder of Gen Y Planning.
“But it’s important to hustle, so that you have more cash coming in and can pay it off before the intro rate is up,” she adds. Sometimes, if you don’t pay off the entire balance before then, you’ll be charged interest retroactively—e.g. for all the months that you’ve had the card open.
This is known as “deferred interest,” and is common with store-branded cards. Waived interest, by contrast, means you’re never required to pay interest on purchases made during the intro period, provided you make on-time monthly payments. Read the fine print to find out which applies to your card.
Because failing to pay off the balance in time can cost you, it doesn’t suffice to think you’ll have enough money to zero out the bill before the deadline. Even if the cash is tied up in savings, having it today is a must. It means you’re covered in case that tax refund, bonus or raise you’re expecting falls through.
Finally, before going this route, reflect on your relationship with debt. Are you uber-diligent about paying your bills on time and avoiding new debt? Then you may be equipped to handle the responsibility. But if credit cards have tempted you into overspending in the past, this option probably isn’t for you.
“The big risk is that something goes wrong, you aren’t able to pay it off before the 0-percent offer expires—and you end up with credit card debt at a high interest rate,” says Matt Becker, Certified Financial Planner and founder of Mom and Dad Money. “In some cases that might mean you just pay a little extra, but in others, it might [kick off] an extended period of being in debt and accumulating interest.”
Even if you contend that carrying a balance makes sense because your money could work harder for you in a high-yield savings account, Becker still doesn’t think it’s worth it. For example, if I put the $1,200 into a savings account with a 1 percent annual percentage yield, then withdrew $100 monthly to make payments toward my laptop purchase, I’d earn less than $7 in interest over the course of the year.
Investing the money probably isn’t wise, either. With such a short timeframe, the stock market’s fluctuations could mean you have to sell your investments for a loss when you need the money. And rates on one-year CDs are similar to what you’d earn with a high-yield savings account.
But perhaps the biggest reason to avoid this strategy is if you’ll be tempted to slack off on payments or add to your balance. “Using credit cards like this is a slippery slope,” Bera says, “and it’s hard for people to get ahead because they’re always paying something off and living beyond their means.” If you’re worried you could fall victim to that cycle, just say no.