You Can Save This Holiday With an Introductory Purchase APR – but There’s a Catch

Do you have $900 ready to spend this holiday season? Yeah, neither do we. And yet, that’s about how much the average shopper is expected to spend this year, according to the National Retail Federation.

Not everyone has the cash to pay for gifts and festivities upfront. And while putting your expenses on a credit card may be convenient, the average credit card interest rate is well over 20%. If you can’t pay off your bill right away, your debt can balloon quickly and land you in financial trouble.

While a credit card with an introductory purchase APR can give you some breathing room and enticing perks, there are definitely some pitfalls to watch out for. 

An introductory purchase APR is a set amount of time when the new purchases you make on your card won’t accrue interest. It’s a helpful feature but could leave you with extra debt if you don’t have a plan to pay it down before the promotional period ends.

However, if you strategically use a 0% intro APR credit card, you can pay off those holiday purchases over time — typically nine to 21 months — without forking over additional interest. And you could even potentially earn some rewards.

“If you do all your holiday gift shopping early on a card that offers travel rewards and know you can pay off the balance before the 0% interest period is up, you can use the points you gain from holiday shopping to book holiday travel,” said financial adviser Mark Henry of Alloy Wealth Management. 

How an intro APR can help you finance your gifts

Let’s face it: Holiday debt can too often end up sticking around well into the new year. In this year’s CNET holiday shopping survey, 16% of people surveyed indicated they planned to make purchases on their credit cards and pay it down over multiple billing cycles. 

Using a card that offers a 0% intro APR on new purchases can help you manage paying off that debt faster and cheaper.

For instance, if you charged $900 to a credit card with an introductory 0% APR for 12 months, you could pay off that new balance interest-free by making a monthly payment of $75 during the intro period ($900/12).

Not only can you save money on interest with these cards, you can benefit in other ways. You can earn rewards for each purchase as well as generous credit card welcome bonuses. And with travel rewards credit cards, you can earn points and miles to pay for holiday trips to see family and friends.

So what’s the catch? Well, for one, intro 0% APR offers don’t  last forever. Once they end, any remaining balance starts accruing interest at the regular interest rate — typically 20% or higher.

The key to taking advantage of an introductory period is setting a realistic repayment plan before you even make the purchase, said financial adviser Michael Boggiano of Wealthcare Financial. 

This means calculating the monthly amount needed to pay off the balance by the end of the promotional period, then treating it as a required monthly bill. Avoid using the card for new purchases once holiday spending is done, which can help keep the balance manageable.

Warning: Zero interest doesn’t mean zero payments. You still have to pay at least the minimum amount on your credit card by your payment due date each month. Otherwise, you could lose the promotional APR and hurt your credit score.

Pros and cons of using an intro purchase APR

Before you charge holiday purchases or any other type of spending to a credit card that offers an intro 0% APR, think over the advantages and disadvantages.

Pros

• Spread out the costs of holiday shopping over a set period without paying interest charges.
• Some intro 0% APR credit cards offer rewards for spending.
• Credit cards provide $0 fraud liability.
• Cardholder benefits may apply to gifts, such as purchase protection against damage or theft or extended warranties.
• Build your credit score with on-time payments.

Cons

• Intro APR offers last for only a limited time, typically nine to 21 months.
• If you can’t pay off the balance by the end of the introductory period, the regular interest rate can accrue quickly and lead to credit card debt.
• It’s easy to overspend when using a credit card.
• Adding new debt can increase your credit utilization ratio, which can hurt your credit score.
• Late payments can hurt your credit score.

Things to keep in mind when using an intro purchase APR this holiday

If you decide to use a credit card with an intro APR for holiday shopping this year, the best strategy is to have a plan to pay off what you spend as soon as possible.

Use these tips:

• Avoid overspending. Creating a holiday shopping list with a dollar-figure estimate for each gift can help you stick to your budget and avoid racking up balances you can’t repay. 
• Don’t make unplanned purchases. Having a holiday list is helpful only if you stick to it. Do your best to avoid unplanned purchases. Avoid the temptation to buy for additional people, wait 24 hours before you make a purchase and resist shopping online out of boredom.
• Make a plan before you start buying. Most importantly, have a plan to pay off your balance before the promotional period ends. Any unpaid balance will accrue interest when it’s over.

Should you apply for a new credit card for your holiday shopping?

There are plenty of benefits to applying for a new credit card for your holiday shopping. It makes it easier to manage your spending, you could earn rewards for your expenses, and an introductory purchase APR would help ensure you’re not on the hook for interest charges. 

And since you’ve budgeted your holiday shopping (right?) the planned spending could help you earn a welcome bonus. Some credit cards, like the Wells Fargo Active Cash® Card*, feature lower spending thresholds that make earning the bonus quite easy.

However, credit cards do have their downsides too. If you’re likely to be tempted to overspend for the sake of rewards, you should skip adding a new credit card to your wallet. Or if it’ll be too many cards for you to manage responsibly, it’s not worth the risk of damaging your credit. You’ll also need a plan to pay off any spending you do before the intro APR ends, otherwise interest will accrue once more.

Some cards to consider

If you’re looking for a credit card with an intro APR offer, there are options with and without rewards. Here are some cards to consider this year:

• Chase Freedom Unlimited: This card offers 5% cash back on travel through Chase Travel℠, 3% back on dining and drugstore purchases and 1.5% cash back on all other spending. Users also get an introductory 0% APR on purchases and balance transfers for 15 months (then 19.99% to 28.74% variable).
• Capital One SavorOne Rewards Credit Card*: This card comes with an intro 0% APR on purchases and balance transfers for 15 months (then 19.74% to 29.74% variable). You can also earn a $250 cash bonus after spending $500 on purchases within three months of account opening, and the card offers bonus rewards on groceries, dining, entertainment, streaming services and eligible travel purchases made through Capital One.
• Wells Fargo Reflect® Card*: While this card doesn’t offer any rewards, it has a much longer intro APR offer period for people who need more time to pay down holiday bills. There’s no annual fee, and cardholders get an intro 0% APR on purchases and balance transfers for 21 months (then 17.74%, 24.24% or 29.49%).

*All information about the Wells Fargo Active Cash Card, Capital One SavorOne Rewards Credit Card and the Wells Fargo Reflect Card has been collected independently by CNET and has not been reviewed by the issuer.