From cash back programs, free airfare, or simply the convenience of charging to credit, there are plenty of reasons to prefer spending with a credit card.
But too often, this preference can make it easy to overspend, get into debt, and pay gobs of credit card interest. Simply put, paying credit card interest on all of your purchases makes your life needlessly pricier.
But just because you use credit cards doesn’t mean you have to pay interest. By knowing more about credit cards, you can find out how to avoid interest on credit card spending.
How credit card interest works
Credit card interest is charged each month on the outstanding balance that you carry. Any purchases made within a month are added to the balance for that billing cycle, along with any outstanding charges from past billing cycles.
For example, maybe you have a $500 balance and charge an additional $500 to your card. Your balance at the end of the billing cycle will be $1,000.
Your credit card grace period
Credit card issuers offer you a grace period, usually around 20 to 25 days. This grace period is the time between when the billing cycle closes and a payment for the cycle is due. During your credit card grace period, you have the chance to pay down or pay off your balance before new interest accrues.
At the end of your grace period, which will usually coincide with your credit card due date, you will have a minimum payment due (usually equal to 1 to 3 percent of your balance).
After your due date, your credit card company will capitalize your interest. This means they will calculate any interest you owe on your balance, and add it to what you owe.
Calculating your credit card interest
You can estimate your monthly interest costs out by dividing your APR by 12 to find your nominal, or monthly, interest rate.
A 20% APR, for instance, would result in a 1.6% interest rate. That means you’ll get charged 1.6% in interest for the average daily balance you carry each month. For the $1,000 balance mentioned above, that would be about $16 each month in interest fees.
How to avoid interest on credit card charges
Knowing how a credit card works means you know how to avoid interest on credit card balances. Here are two tricks to never pay interest (or at least pay less interest over time).
1. Pay your credit card balance in full each month
Paying off credit card balances each month is central to responsible credit card management.
What does that mean? When you pay your credit card balances in full each month, you always pay the entire balance accrued during the previous billing cycle before the grace period ends. So for the $1,000 balance, you’d pay the full $1,000 before the due date.
Paying off your credit card each month is the most effective way to avoid credit card interest. Instead of carrying a balance over into the next month and getting charged interest fees, you settle your debts completely each month. You credit card issuer never has a balance on which to charge interest.
Additionally, setting this spending pattern helps you keep credit charges affordable. If you’re aiming to repay the balance each month, it has to be low enough that you’ll have funds to do so. Paying your credit card balance in full each month will also build positive credit history and could help raise your credit score.
2. Get a new credit card with 0% interest
Of course, repaying your credit card balance in full each month requires spending control and follow-through. Maybe you’re not quite there with your financial habits, or you have an outstanding credit card balance you can’t repay in full just yet.
Another idea for how to avoid paying interest on credit cards is to take advantage of a 0% introductory interest rate. If you get a new card with a 0% interest rate, you won’t get charged any interest rate for the full introductory period (typically 12 months).
Maybe you’re working toward a habit of paying balances off in full each month. Charging with a 0-interest card will help you build that system, while avoiding credit card interest during months you fall short.
If you have an existing credit card balance, a balance transfer can move that debt to the 0-interest card. You can get ahead with a year’s worth of payments being applied directly to your principal, rather than interest.
Stop wasting money on interest
When you use credit cards, paying interest fees may seems like an unfortunate fact of life — but it doesn’t have to be. With smart money management and a little planning, you can avoid interest fees for good.
Looking for more advice to manage credit card debt? Find ideas in our ultimate guide to paying if off faster.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|