Credit Card Interest (and How to Avoid It)
Credit cards are powerful financial tools, but the interest charges you pay on them can be overwhelming unless you know a few workarounds to avoid paying interest altogether. Credit card interest is the fee that you pay when carrying a balance over from one billing cycle to the next. Different credit cards offer different interest rates, which are also known as annual percentage rates and commonly as an APR. Your credit scores can also have an effect on what your APR can be. Generally speaking, the higher your credit score, the lower the APR you’ll be charged by the credit card issuer. Even though you should be reading it thoroughly during the sign-up process, be sure to check the card’s terms & conditions in the advertiser disclosure for more details on interest charges. If you’d like to learn how to avoid paying interest on your credit card balance, consider some of the tips outlined below.
For Regular Purchases
There’s no denying that credit cards are convenient tools for making purchases but taking advantage of that can be a costly mistake if left unchecked. Many cards offer new cardholders an extended introductory period where they may not have to pay interest on new purchases, but all good things come to an end, and if left unpaid your balance will still be waiting for you when your regular purchase APR rates kick in. When you make purchases using your card and maintain a credit card balance from one billing cycle to the next after your intro APR period is up, you’ll have to pay interest on that amount. In order to steer clear of those interest charges on your purchases, it helps to know your credit card’s grace period. The grace period is the time between the last date of your billing cycle and the cycle’s due date. If you’ve made a large purchase and could use a few extra weeks to pay it off before extra charges occur, taking advantage of your grace period would leave you interest-free. Speaking of payments, paying your balance in full before the last date of your billing cycle is a surefire way to avoid interest charges altogether as there will be no balance to pay interest on. It shouldn’t be thought of as a novel idea to pay your bill as soon as you’ve gotten your credit card bill but doing so will eliminate costly headaches in the future.
For Balance Transfers
Many credit cards attract new customers by offering long introductory periods where they don’t have to pay interest on balance transfers in addition to attractive rewards programs. If you’re currently paying interest on a credit card balance that got out of hand, transferring that debt to a card with a lengthy 0% intro APR period for balance transfers will give you some breathing room to pay off the balance at a pace you can afford. Pay that balance before the honeymoon period is over, and you’ll save considerable cash.
For Cash Advances
A cash advance is a temporary fix for a long-term problem, but it is a useful option to have if you find yourself in a financially tight spot nonetheless. Using your credit card to withdraw cash from an ATM will trigger a host of fees found in the terms & conditions of your credit card, and you’ll likely be charged interest on the advance amount at a far more aggressive rate than what you may be paying for new purchases or balance transfers. Unfortunately, there’s no grace period when it comes to cash advances, so you’ll want to avoid them if you can to not have to pay interest on them. If you absolutely must get a cash advance, pay the full amount you borrowed as soon as possible to mitigate the interest you’ll be hit with. While you can set up custom smartphone alerts for most credit cards through your smartphone nowadays to warn you of impending fees and charges, it is ultimately your learned responsible behavior that can best help you avoid paying interest on your credit card balance. Pay your bills on time, as early as you can, and keep cash advances to a minimum, and you’ll be in a better position to save the funds you didn’t have to spend in the first place.