- Only spend what you can afford and pay your balance in full each month. Automatic payments and budgeting tools can help avoid common financial mistakes.
- Taking out a 0% APR credit card can help pay off high balances over a longer period without incurring interest.
- A credit card that offers a 0% balance transfer can help you avoid paying more interest on your existing debt for up to 18 months.
- A personal loan can also help reduce the interest you pay on existing debt.
- Your credit card issuer may offer payment plans and hardship programs to help get your interest charges under control.
If you repaid $102 each month on a credit card debt of $4,000 with a 20% APR, it would take five years to pay off the entire balance. It would also cost you over $2,000 in interest payments.
According to TransUnion, total credit card debt hit a record $930.6 billion at the end of 2022, up 18.5% from the year prior.
Credit card debt affects millions of Americans. If you’re making big interest payments every month or just want to avoid having to pay credit card interest, we’ve got some tips for you.
This Guide Is For You If…
- You’re accruing interest on credit card debt every month
- You want to know how to avoid paying credit card interest
- You’re new to credit cards and want to understand more about how they work
How To Avoid Paying Credit Card Interest
The Basics
When You Can Expect To Pay Interest On Your Credit Card Balance
You pay interest on your credit card debt when you carry a balance from one month to the next. The interest rate varies, and you can avoid paying interest by paying your balance in full each month by the due date.
If you can’t pay off the balance in full, try paying as much as possible to reduce the interest you will be charged over time.
How To Use A Credit Card Responsibly
- Read the fine print to understand the terms and conditions of your credit card, such as the interest rate, late fees, and due dates.
- Consider using a debit card or cash instead of your credit card.
- Avoid cash advances, as these often have higher interest rates.
- Avoid unnecessary purchases on your credit card and only use it for essential expenses.
Avoiding Credit Card Interest if You’re Considering Getting a Card
Make A Plan
Most credit card statements include a payoff schedule comparing what would happen if you pay only the minimum payment or more each month. This helps visualize how that interest will add up over time, which can help with the following tips.
- Use a budgeting tool to track your spending.
- Make a plan, like setting a monthly payment goal.
- Sign up for text alerts, app notifications, or other helpful reminders.
- Set up automatic payments, so you never miss a due date or get hit with late fees, resulting in even more interest.
Consider a 0% Purchase Credit Card
If you need to make an emergency purchase and cannot pay off your full balance before the first month’s due date, consider using a 0% APR credit card. These credit cards offer an introductory period, typically 6 to 18 months, during which interest will not be charged. This will give you more time to pay off your balance.
Ready to learn more? Take a look at our guide on the best 0% APR credit cards.
Understand the Grace Period
Your credit card balance is due at the end of each monthly payment period. However, you don’t actually have to pay your balance until a certain date after that period. Typically, if you pay your balance before the payment date, you won’t be charged interest.
For example, if your payment period was from January 1st to January 31st and you had a 20-day grace period, you wouldn’t be charged any interest if you paid before February 20th.
Avoiding Credit Card Interest On Your Existing Debt
To pay off your credit card debt, consider transferring your balance to a credit card with a lower interest rate, taking out a personal loan, or working with your credit card company to explore other options for avoiding additional interest.
Get A 0% Balance Transfer Credit Card
A 0% balance transfer credit card allows you to transfer existing balances to a new card with 0% interest for a limited time, usually 6 to 18 months. You will need to pay a balance transfer fee, but this option can save you on interest charges.
Paying off the balance before the introductory period ends is important to avoid falling behind and losing any progress you’ve made.
Take Out A Personal Loan
Suppose you’re struggling to make your credit card payments or want to consolidate multiple credit card balances into a single payment with a lower interest rate. In that case, taking out a personal loan may be a suitable option.
Personal loans usually have fixed interest rates and repayment terms, making budgeting and paying off your debt easier. Additionally, personal loans may offer lower interest rates than credit cards, which can save you money in the long run.
Set Up A Payment Plan
If you’re struggling with credit card debt, you may be able to set up a payment plan with your provider to pay back your balance over time. Many issuers offer hardship programs to help you manage your debt and make payments more affordable.
To set up a payment plan, you’ll need to contact your credit card issuer and explain your financial situation. They may ask for documentation to support your hardship, such as proof of a job loss or medical bills. Based on your situation, they may offer a plan that reduces your interest rate, lowers your monthly payments, or extends your payment period.
Keep in mind that entering into a payment plan with your credit card provider may impact your credit score, and you might still be charged interest on your outstanding balance. Before agreeing to a plan, make sure you understand the terms and conditions and can afford the payments.
It Pays To Be Informed
Credit card interest can be frustrating, stressful, and overwhelming. You may even feel embarrassed to discuss these challenges or admit you need help, but it’s important to know that personal finance is complex and that many people struggle with debt at some point.
With these tips in mind, you can take control of your finances and avoid paying unnecessary interest charges.
Ready to learn more? Start with our guide on how to pick the right credit card.
Frequently Asked Questions (FAQs)
What Is Credit Card Interest?
Credit card interest is the amount of money a lender charges when borrowing money. When you use your credit card to make a purchase, you are basically borrowing money from the lender. If you don’t pay off the balance in full by the due date, the lender will charge you interest on the unpaid balance.
How Is Credit Card Interest Calculated?
Credit card interest is calculated based on the outstanding balance on your credit card. The interest rate is an annual percentage rate (APR), and the lender usually calculates interest daily.
According to the Federal Reserve, the average interest rate was 20.4% at the end of 2022.
How Does My Credit Score Affect My Interest Rates?
Credit card companies use your credit score to determine the interest rate they will charge you on your credit card. You may be charged a higher interest rate to offset the risk if you have a low credit score. You may be offered a lower interest rate if you have a high credit score.
What Are The Risks Of Accruing Credit Card Interest?
Credit card interest can add up quickly and become a burden on your finances. If you don’t pay off your balance in full each month, you could end up paying hundreds or even thousands of dollars in interest charges over time.
Additionally, carrying a high balance on your credit card can negatively impact your credit score, making it harder to get approved for loans or other credit in the future. By avoiding credit card interest, you can save money and protect your credit score.
Are There Other Fees Associated With Credit Cards?
Even the best credit cards have other fees to consider. Annual fees, balance transfer fees, and cash advance fees are additional fees commonly associated with credit cards.
What Are Some Common Credit Card Mistakes To Avoid?
If you’ve found a rewards card with 0% interest and maybe even a cash bonus for signing up, take some time to look closer (with a healthy bit of skepticism).
Some credit cards offer low introductory interest rates that increase significantly after a certain period of time, and people may only realize this after it has already happened.
Others have high interest rates that are difficult to pay off, especially if the cardholder only makes minimum monthly payments.
