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On this week’s Mullooly Asset Management video, I cover a basic financial planning topic related to credit. In the midst of the holiday season, all of us at Mullooly Asset thought it would be timely to discuss zero percent financing deals.

A lot of big-ticket items like furniture, appliances, and TV’s come with zero percent financing offers. Zero percent financing is also offered on balance transfers, where you consolidate different debts onto one card. You need to be VERY aware of the terms involved with these deals.

Zero percent financing is typically offered for twelve month periods (sometimes six). If you read into these offers, there’s normally an unpleasant surprise. Carrying a balance past the terms of the offer (like day 366 on a one year deal) frequently results in the credit company taking all of the interest you would’ve paid, and adding it to your remaining balance. Here’s the catch: It’ll be at a much higher rate of interest, like 30%. Probably not what you wanted to sign up for, right? Unless you enjoy high cost debt for some strange reason, I suppose.

Zero percent financing deals aren’t without use. If you understand precisely what the deal states, you can use them to your advantage sometimes. Here’s an easy way to determine if a one year, zero percent financing offer is for you: Take the cost of the item you’re interested in and divide it by ten. If that number is a cost you can afford for the next ten months, then the deal might be something to consider. If you can’t afford that payment for the next ten months, you cannot afford the item. Forget it!

The underlying message here is to read the fine print on zero percent financing deals. If something sounds too good to be true, it probably is.

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