How to Avoid Interest on Your Credit Card
Credit cards can be valuable tools, but avoiding interest charges is key to maximizing their benefits. Interest compounds quickly, especially if you carry a balance. Here’s how to keep interest at bay while making the most of your credit card.
Why Avoiding Interest Matters
Interest rates on credit cards often exceed 20%, making even small balances grow into substantial debt over time. By avoiding interest, you can save money and ensure your credit card serves as a financial asset rather than a liability.
Tips to Avoid Credit Card Interest
- Pay Your Balance in Full:
Credit cards typically offer a grace period—usually 21 to 25 days after your billing cycle ends—before interest starts accruing. Paying off the full balance within this timeframe ensures you won’t owe any interest. - Understand the Grace Period:
If you miss paying the full balance even once, you may lose your grace period. Once lost, interest starts accruing immediately on new purchases until the balance is paid in full. - Use 0% APR Credit Cards:
Many credit cards offer a 0% introductory APR for 12 to 18 months. These cards can be used strategically to finance large purchases or consolidate debt without incurring interest during the promotional period.
Recommended 0% APR Credit Cards
- Citi Simplicity®
- Intro APR: 0% for 21 months
- Regular APR: 18.24%-28.99%
- Annual Fee: $0
- Best For: Long balance transfer periods
- Chase Freedom Unlimited®
- Intro APR: 0% for 15 months
- Regular APR: 19.49%-28.24%
- Annual Fee: $0
- Best For: Earning cashback
- Wells Fargo Active Cash®
- Intro APR: 0% for 15 months
- Regular APR: 19.24%-29.24%
- Annual Fee: $0
- Best For: Flat-rate cashback
Common Mistakes to Avoid
- Making Minimum Payments:
Paying only the minimum ensures you’ll accumulate interest. Always pay more, ideally the full amount. - Using Cash Advances:
Cash advances start accruing interest immediately and often have higher APRs and fees compared to regular purchases.
Example Scenario: The Cost of Only Paying the Minimum
Imagine you charge $1,000 to your credit card and only pay the minimum monthly payment of $25 at a 20% APR. Here’s what happens over time:
- Month 1:
- Payment: $25
- Remaining Balance: $975
- Interest Charged: $16.25
- Month 2:
- Payment: $25
- Remaining Balance: $966.25
- Interest Charged: $16.10
- Month 12:
- Payment: $25
- Remaining Balance: $825.45
- Interest Charged: $13.76
By the end of the year, you’ll have paid hundreds in interest while barely reducing your balance.
Take Action Today
To avoid interest, pay your balance in full whenever possible, take advantage of your grace period, and consider using 0% APR credit cards strategically. With discipline and the right tools, you can keep your finances on track and make your credit card work for you.