How to Avoid Paying Credit Card Interest

5 Ways to Avoid Credit Card Interest

Credit card interest can take a toll on your financial well-being and, in some cases, even trap you in a cycle of high-interest debt. Whether you're new to credit cards or you've been using them for years, here are five ways to steer clear of interest charges.

1. Pay Your Bill in Full Each Month

Most credit cards offer a grace period, which lasts at least 21 days starting from your monthly statement date. During this time, you can pay your full balance without incurring interest on your purchases.

Using this grace period strategically is an excellent way to manage your income and expenses. But, it's critical that you set up payment alerts or automatic payments to make sure you pay on time.

If you carry even a small balance from one month to the next, you may lose your grace period on new purchases—meaning they'll start accruing interest immediately—until you pay the balance in full.

2. Avoid Cash Advances

Unlike new purchases, cash advances don't get a grace period. What's more, the annual percentage rate (APR) on cash advances is often higher than the rate you'll pay for purchases, and you'll also typically be assessed a cash advance fee, typically 3% to 6% of the advance amount.

For these reasons, it's best to avoid cash advances unless the only alternative is even costlier, such as a payday loan.

3. Use 0% Intro APR Periods Wisely

Many credit cards offer a 0% introductory APR promotion on new purchases. These promotions make it easier to finance large expenses and pay them down over time without having to worry about interest.

Depending on the card, the 0% intro APR promotion can last anywhere from six to 21 months. If you don't pay off your purchases in full by the end of the introductory period, the card issuer will begin to charge interest on the remaining balance.

Regardless of how long your promotion is, make a plan before you get the card to pay it in full before the 0% intro APR period ends.

This is especially important with some store credit cards that use a deferred interest arrangement instead of a true 0% intro APR promotion. If you don't pay off the balance on a deferred interest plan, the card issuer will charge interest retroactively based on the original balance.

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4. Utilize Balance Transfers

If you have a sizable balance on one or more of your credit cards, paying it off will likely take time. If your credit score is in good shape, consider applying for a credit card that offers a 0% introductory APR promotion on balance transfers.

With this feature, you can move some or all of your balance over to the new card and get anywhere between 12 and 21 months to pay it off interest-free.

Keep in mind, though, that balance transfer cards typically charge an upfront fee of 3% to 5% of the transfer amount.

5. Use a Budgeting App

Using a budgeting app can make it much easier to avoid paying credit card interest by helping you stay on top of your spending and payment habits. These apps give you a clear view of where your money goes each month, allowing you to spot patterns before they lead to a balance you can't pay off in full.

Some budgeting tools can even sync directly with your credit cards and bank accounts so you see how your purchases add up and how much you can safely spend while still paying your bill in full each month.

By tracking your income, expenses and payments in one place, a budgeting app helps keep you organized, accountable and less likely to carry a balance that accrues costly interest.

How to Lower Your Credit Card APR

Taking advantage of your credit card's grace period is a great way to avoid interest charges, but there's always the possibility of paying interest, so it's still a good idea to look for opportunities to lower your APR. Here are some options to consider:

• Ask your card issuer to lower your interest rate. Some credit card companies may be willing to lower your interest rate, especially if your credit has improved since you first opened the account.
• Apply for a new card. If you can't get the results you want on your existing cards, you may be able to qualify for a lower interest rate on a new credit card and start using it instead. For example, credit unions tend to offer lower interest rates than banks and are legally required to cap their APRs at 18%.
• Improve your credit. If you haven't already, take the time to work on building your credit score. This will give you more opportunities to obtain a lower credit card APR in the future.

How to Reduce Credit Card Interest

If you're carrying a credit card balance, there are several ways to lower what you pay in interest and get out of debt faster:

• Make multiple payments each month. Paying more than once a month helps reduce your average daily balance, which can cut the amount of interest that accrues.
• Follow a debt repayment strategy. Use the debt avalanche or debt snowball method to stay organized and motivated.
• Consolidate with a personal loan. A lower-interest personal loan can replace multiple high-rate credit cards, simplifying repayment and potentially saving you money on interest.
• Use savings strategically. Paying off a chunk of your balance with savings can immediately reduce interest costs. Just be sure to keep your emergency fund intact.
• Transfer to a 0% intro APR credit card. A balance transfer card can give you a limited interest-free period to pay down debt faster, though transfer fees may apply.
• Consider credit counseling. A nonprofit credit counseling agency can help you create a budget, advise you about debt management strategies or set up a debt management plan to help you tackle your debt.

Prioritize Your Credit Score

While there are several different steps you can take to keep your credit card interest in check, one of the best approaches is to build your credit history. The better your credit score, the easier it will be to qualify for lower interest rates, 0% intro APR and balance transfer credit cards and debt consolidation options that can help you save money.

As you work to build credit, Experian's credit monitoring service can help you keep track of your progress by providing free access to your FICO^® Score^Θ and Experian credit report, as well as real-time alerts to keep you up to date on changes to your credit report.