How to Avoid Paying Interest on a Credit Card

When it comes to owning and using a credit card, one of the best ways to manage your financial situation is to keep an eye on the amount of interest that you’re paying. Whenever you make a purchase with a credit card, your balance increases, and the amount of interest you pay will also go up.

If you’re not careful about managing your credit card balances, then it’ll quickly lead to higher interest charges each month, especially if you wait too long to pay it back.

But credit card interest isn’t as straightforward as some might think.

How Interest Actually Works

Interest is essentially a monetary charge that is applied when borrowing money. When it comes to credit card interest, it is a little more complicated than an annual interest that you pay for a loan.

Credit card interest is expressed as an Annual Percentage Rate or APR. While this sounds similar to an annual interest rate, there are a number of different calculations that can obscure how much you’re actually paying in interest. In many cases, credit cards will have a number of different APRs.

This can include APR on purchases, cash advances if you withdraw money, or a balance transfer APR for moving money between accounts. Some lenders also offer an introductory APR rate that is lower than the normal one.

For a more in-depth look into the ins and outs of credit card interest, you can check out our dedicated guide.

Why You Should Avoid Paying Interest

It’s a good idea to try when possible because you’re essentially losing extra money whenever you use your credit card for purchases.

Credit cards allow us to purchase things that are otherwise outside of our financial reach. We achieve this by splitting the payment over several repayments using our credit card.

However, in order for banks to profit from this transaction, they charge interest on those payments, which means everything we buy is technically more expensive than if we bought it with cash.

In addition, some people use their credit cards as a source of money that they withdraw from, much like a regular bank account. However, it’s best to avoid cash advances because there could be additional fees associated with it.

In most cases, a cash advance is around 5% of the amount withdrawn (up to $10) each time you get some cash this way. In short, you should avoid cash advances and watch out for high interest rates on credit cards to save some money. 

Avoiding Credit Card Interest can be Simple

Here are some of the easy strategies you can use:

Learn About Grace Periods

Almost every credit card has a grace period where you can pay the balance in full and not be charged any interest. This is usually around 21 days to a month after a purchase, but some introductory offers might extend beyond this period.

Don’t Delay Your Payments

 If you’re capable of paying off your balances, do it as soon as possible. Many people delay their payments because they feel more comfortable having extra money around for emergencies and unplanned expenses. However, the sooner you pay off those balances, the less interest you’ll be paying.

Stick to a Payment Schedule

It’s also important to make regular repayments, especially if you’re looking to pay off your balances within the grace period. Just consider how much you’re spending with your credit card and then divide that by the grace period.

For example, if you’re making a purchase worth $1,200 and there’s a 21-day grace period, you should be repaying around $400 every week to avoid paying interest later.

Avoid Using Your Credit Card When Possible

As mentioned above, most people use their credit cards for purchases outside of their financial reach. However, if you get into the habit of using your credit card because it’s convenient, it’s easy to overlook the interest you’re paying over a more extended period.

Try to avoid using your credit card for anything but out-of-reach purchases that you’re sure you’ll be able to repay in time.

Apply For a Credit Card With a 0% Intro APR

When you apply for a credit card with a 0% introductory rate, the issuer will give you a certain amount of time during which you won't have to pay any interest on your balance. This can be a great way to save money if you plan to borrow some using your credit card.

Once the introductory period ends, the issuer will start charging interest on your outstanding balance. Therefore, it's essential to pay off your balance in full before this happens. Otherwise, you'll end up paying a lot of money in interest charges.

Stick To a Budget

Create a budget and stick to it. This means being disciplined with your spending and not overspending on things you don’t need. Use your credit card for emergencies only, and make a list of all your expenses so you can track your spending. 

If you use your credit card responsibly and stick to a budget, then you can avoid going into debt and make the most of your credit card.