Credit card interest can add up quickly, especially for those who carry a balance from one statement cycle to the next. Quick action can help account holders avoid paying interest on their credit cards and saving money.
The Simplest Solution
The easiest way to avoid paying interest on a credit card balance is to not carry a balance. This means paying off any purchases made with the card every statement cycle, which is typically monthly. If the balance is paid in full before the payment is due, no interest will be charged.
Statement Cycles Vary
Check the terms and conditions of your credit card account to discover:
- What day your balance is due in order to avoid interest charges
- If a grace period exists; this is a period of days after the statement date in which the payment can still be made and not considered late and no interest is charged
Credit card issuers vary widely regarding terms and conditions of their cards, so consult the terms and conditions for the specific card in question before assuming a grace period exists; accounts that are not in good standing (such as a late payment) may not offer a grace period at all.
Credit card issuers occasionally offer interest promotions to their cardholders. While these typically mean lower interest rates on purchases and balance transfers for a specific period, once in a while they will offer special "no interest" promotions to new and existing cardholders. While these may seem like an easy method for avoiding interest altogether, it's important to note what happens upon the expiration of the promotional period. In most instances, if the balance falling under the promotional period isn't paid off before the expiration of the promotion, the balance will be subject to an interest rate that may be higher-than-average. So while these promotions can, indeed, help you avoid paying interest, it's important to understand the details of the promotion.
No-Interest vs. Deferred Interest
A credit card promotion advertised as a "no interest" promotion might actually be a deferred interest promotion where the cumulative interest from purchases during the promotional period is added to the balance upon the expiration of the promotional period. In this instance, there's no avoidance of interest but rather a delay in interest charges. For this reason, these promotions aren't appropriate for those with the goal of avoiding paying interest.
Transferring a balance from one credit card to another under a promotional 0% interest rate is one way to avoid interest charges, but only if the balance is paid off before the end of the promotional period. Note other fees may exist (such as a balance transfer fee - typically a percentage of the balance transferred), so know these fees before getting lured in from the promise of no interest.
Perpetually switching from one card to take advantage of balance transfers can work to avoid interest, but keep this in mind:
- Opening new credit card accounts frequently may have a negative impact upon your credit score and may make you ineligible for new accounts in the future.
- Credit card companies offer balance transfer promotions based on the creditworthiness of the cardholder. A lower credit score resulting from too much card hopping means you won't receive these offers anymore.
It's a smart idea to try to avoid paying interest on credit card accounts since interest that isn't paid off compounds (meaning you pay interest on the interest). Ultimately, credit card companies make money from collecting interest so they don't make it easy to avoid. Paying off your balance as quickly as possible helps lessen the interest charges and paying the balance of completely guarantees no additional interest charges.