How to Avoid Paying Interest on Your Credit Card

Your credit card gives you the advantage of paying off your balance over a period of time. However, carrying a balance on your credit card from month to month usually means you’ll have to pay interest, in the form of finance charges. If you want to keep your credit card cost-free, or at least minimize the cost of having a credit card, that means avoiding credit card interest payments.

What’s wrong with paying interest?

When you pay interest on your credit card balance, you end up paying more for your purchases than you initially borrowed. The higher your interest rate and the longer it takes to pay off your balance, the more total interest you’ll end up paying. Some credit cards charge daily interest, so a credit card with an annual percentage rate (APR) of 15% will actually cost you more than that if you don’t pay your credit card balance in full each month. For some people, that could mean a week’s worth of lunch, a tank of gas, or a month of cell phone service, or a college textbook, or the value of diapers for a month. You don’t really realize how much you’re actually spending on interest because it’s spread out over time and added to your credit card payment, but that doesn’t lessen its importance.

In theory, avoiding interest is simple

Generally, you can avoid credit card interest by paying off your balance in full each month before the end of the grace period. Grace periods are usually at least 21 days. Your credit card issuer should send your billing statement well before the grace period begins so you can take advantage of it.

If you’re like many people today and simply can’t pay a $1000 balance all at once, pay it off as soon as you can – and try not to put any additional debt on that card until you’ve paid off your balance. If you are gradually paying down your balance, you won’t avoid interest altogether, but you will reduce the amount you pay.

Once you get used to paying the least amount of interest possible, be proactive in achieving your goal of having no interest. This means charging only what you can afford to pay off each month. Don’t buy $1000 on your credit card if you can only pay $300. Instead, set a maximum purchase limit of $300. Use your budget to reassess what you can afford to spend each month.

When the grace period doesn’t apply

The grace period is essential for avoiding interest charges, but not all credit card balances have a grace period. For example, you might not have a grace period if you carry a previous balance on your credit card at the beginning of the billing cycle. In other words, if you didn’t pay your balance last month, your new purchases may also be subject to finance charges.

Some types of transactions – like cash advances and sometimes balance transfers – do not allow for a grace period. Interest begins accruing immediately on these types of transactions. The only way to avoid paying interest on a transaction without a grace period is to pay off the balance on the same day you make the transaction – and that’s usually not feasible.

Read the terms carefully

Although rare, some credit cards do not offer any grace period at all. Do your due diligence and find out if the credit card has a grace period by reading the credit card disclosure. Then, avoid credit cards without a grace period entirely.

Offers

No Interest and Other Promotional Types

Be wary of “No Interest,” “Same as Cash,” and “No Interest if Paid in Full” offers. These are deferred interest financing plans that require you to pay off the balance in full by the end of the promotional period – and often the interest rate in that case is extremely high.

Frequently Asked Questions (FAQs)

What happens if the credit card balance isn’t paid off before the end of the no-interest period?

Different cards may treat remaining balances differently after the promotional period ends. In the worst-case scenario, the card will impose deferred interest. This adds up all the interest costs that would have accrued if the balance hadn’t had a promotional period at all. Other cards may treat the remaining balance simply as a new balance subject to normal interest charges on the next statement.

What is a good credit card interest rate?

The average credit card interest rate is around 20%, so any rate lower than that can be considered a good rate.

How can you obtain a lower interest rate on a credit card?

Your credit card terms are negotiable, and you may be able to obtain a lower interest rate just by asking for it. Your chances of getting a lower rate, higher credit limits, or any other benefits will depend on how you manage your current credit. A person who keeps their credit utilization to a minimum and misses no payments is more likely to be successful in negotiations.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts mentioned in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.

Federal Trade Commission Consumer Information. “Credit, Debit, and Charge Cards.”

Federal Trade Commission Consumer Information. “Paying Off Credit Card Debt.”

Consumer Financial Protection Bureau. “12 CFR Part 1026 (Regulation Z) § 1026.5 General Disclosure Requirements.”

Investor.gov. “Paying Off Credit Cards or Other High-Interest Debt.”

Consumer Financial Protection Bureau. “What is the grace period for a credit card?”

Consumer Financial Protection Bureau. “How to Understand Promotional Financing Offers on Credit Cards.” Retrieved.

Source: https://www.thebalancemoney.com/how-to-avoid-paying-interest-960661