Can I use my credit card without paying interest? Yes, you can, but it’s not as easy as it sounds. This article will discuss how to avoid and lower your payment interest when using your credit card.
With the second Federal Reserve rate hike of 2022, credit card interest rates are rising, and five more are expected over the rest of the year.
However, there are things you may do to insulate yourself from rising interest rates.
For example, if you pay off your credit card balance in full each month, the card’s interest rate is irrelevant.
Whether the rate is outrageous or the lowest available, it will never be used because the terms and conditions include a grace period for almost all credit cards.
And that’s not the only way to avoid paying interest. This is what you ought to know.
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Now, let’s dive into it!!!
Why Should You Avoid Credit Card Interest?
Unlike loans, credit card interest rates and annual percentage rates are usually the same, and they are among the highest rates you may pay to borrow money.
Compounding is what makes credit card interest so aggravating.
When you pay interest on your credit card, it is added to your balance.
And if you carry that amount monthly, you’ll be paying interest on interest. That’s why getting out of credit card debt is so difficult.
Avoiding credit card interest is the easiest way to deal with it.
This includes using your card’s grace period and other no-interest options, paying your full payment on time, and moving balances as necessary.
What Is A Grace Period?
Your credit card company will create your statement at the end of your pay period.
Most credit card issuers give a grace period between when the statement is created and the due date.
Any purchases made during this time frame will not incur interest charges.
Although most credit card issuers provide a grace period, others do not.
Check your card’s terms of service to determine whether you have a grace period. If not, you may want to switch to a different credit card.
Cards with grace periods must ensure you receive your bill at least 21 days before the due date.
This time frame ensures you have the funds to pay off your debt before your creditor charges interest.
Consequently, many grace periods include the required 21 days and two to four days for printing and mailing.
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How To Maximize Your Grace Period
You can use the grace period on your credit card to help finance new purchases briefly.
It’s like asking for a loan and promising to repay it in a few weeks.
If you meet your deadline, you must repay the amount borrowed.
So, if you have a planned expense, such as travel tickets or a new appliance, you can wait until after your billing cycle closes to make that purchase.
This will allow you to put off paying for your purchase for as long as possible without incurring interest.
But remember that you’ll only get that benefit if you continue to pay your debts in full.
If you can’t make the payment before the end of the billing cycle, paying cash for significant expenses will most likely help your finances.
How To Avoid Paying Credit Card Interest
Avoiding credit card interest charges is as simple as never carrying a balance. You can do this by:
Paying Your Bill In Full.
No interest will be charged on your transactions if you pay on time each month.
The best method to avoid interest payments is to pay your credit card in full monthly.
Moving Debt To A New Balance Transfer Credit Card.
When you can’t pay off an entire bill by the due date, a 0% APR on balance transfers can help save you money on interest payments.
However, you will certainly be charged a fee to transfer each balance, often between 3% and 5%.
Consider whether you can avoid running up card balances again. “A concern is going back to that card with no balance.
Fulfilling those obligations will become increasingly difficult with two balances and two interest rates.”
Planning Major Purchases.
Before you book a big trip or buy a house full of furnishings, check your budget and the closing date on your credit card statement to see whether you can take advantage of the grace period.
Opening A 0% Introductory APR Card.
If you must pay for your purchases over a month or two, a 0% APR card can provide an interest-free option.
Before interest charges apply, ensure you can pay off the balance.
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Ways To Reduce Credit Card Interest
Use a Debt Repayment Method
It may be challenging to face your debt, especially if you’re paying off multiple balances simultaneously.
However, there are ways to stay organized and motivated. The debt avalanche technique can be helpful.
To begin the debt avalanche, list all your debts in the highest to the lowest interest rate.
Then, pay the minimum on each debt while assigning extra funds in your budget to the top list of debts.
After you’ve paid off that loan, go on to the debt with the second-highest interest rate.
As you check each debt off your list, shift your resources and attention to the new top priority.
Make Multiple Credit Card Payments Per Month.
You are not required to pay your credit card at the end of a billing cycle.
You can make payments at any time, which can help you save money on interest.
This is because the interest you’ll pay is determined based on your average daily credit card balance rather than the total balance at the end of a billing cycle.
Making a few smaller monthly payments helps keep your average daily balance lower, lowering your interest.
Tap Into Savings To Pay Down Debt
To face potential emergencies, it’s essential to have savings set aside.
Once you’ve saved enough to last through a crisis, you can use your extra funds to pay off debt.
Consider this: If you’re paying a 15% APR on credit card debt and you pay it off, you’re getting a 15% return on your investment.
Consider A Personal Loan.
If a balance transfer card isn’t an option, you could consolidate your debts by getting a personal loan and paying them off at a lower interest rate.
And because you’ll be making equal monthly payments for a specific amount of time, budgeting for these debt payments can become easier.
How To Lower Your Credit Card APR
Using your credit card’s grace period to avoid interest charges is a great way to avoid paying interest, but there’s always the risk of paying interest, so it’s still a good idea to look for ways to lower your APR. Consider the following options:
• Ask Your Card Issuer To Lower Your Interest Rate.
Most credit card companies may be willing to reduce your interest rate, especially if your credit has improved since the account was created.
• Apply For A New Card.
If your current credit cards are not producing the desired results, you may be eligible for a credit card with a lower interest rate and should consider using it instead.
Credit unions, in particular, have lower interest rates than banks and are required by law to cap their APRs at 18%.
• Improve Your Credit Score.
If you haven’t, take the time to focus on improving your credit score. This will boost your chances of getting a lower credit card APR.
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What Is A Good Interest Rate On A Credit Card?
Interest rates on credit cards vary widely, which is one reason to shop for a new card.
The better your credit, represented by your credit score, the higher the rate you’ll be eligible for.
This is because the credit card company will view you as a lower risk than someone with a lower credit score.
Knowing your credit score and the level into which it falls (such as excellent, good, fair, or poor) can assist you in determining which cards and interest rates you could be eligible for before you apply for one.
Numerous sites, as well as some card issuers, offer free credit scores.
It is important to note that your credit reports, which you can access for free at AnnualCreditReport.com, do not include your credit score.
When Is Credit Card Interest Charged?
If you do not pay your debt in full, the unpaid portion of your balance is carried over to the next billing cycle.
This is referred to as a revolving balance. And revolving balances typically accrue interest.
Remember that if you carry debt from one billing cycle to the next, you may still owe interest even if you pay the new balance in full.
You can reduce the interest you pay by paying off a larger portion of your revolving balance quickly and on time.
Types of Credit Card Fees
Some of the most common credit card fees include:
Annual Percentage Rate (APR)
As previously stated, the Annual Percentage Rate, or APR, is the annual cost of borrowing money.
If you fail to make your monthly repayment to your credit card provider on time, they may increase your APR.
Annual Fee
Most credit card issuers charge an annual fee for credit card use, which can be as much as $50, $100, or even more.
While you may hate paying an annual fee, some credit cards with attractive rewards may be well worth it.
Late Fee
You could be charged a late fee if you do not make your credit card payments on time.
These costs are typically in the $30 to $50 range per occurrence, although they could be higher depending on the card.
Make your credit card payment on time each month to avoid late fees and a potential increase in your interest rate.
Over-limit Fee
Credit card issuers almost usually limit the amount of credit you can use.
If you exceed this limit, the card company will usually charge you a fee (called an “over-limit fee”).
Ensure you know your credit limit before making large or several smaller purchases.
Cash Advance Fee
Several credit cards available today allow users to get a cash advance.
Some credit or debit card companies advertise this by sending users “checks” that only need to be signed and cashed.
However, before you rush to your nearest branch or ATM, remember that most credit cards will charge you a fee for this transaction.
This fee is in addition to the interest charged on your outstanding balance until the cash advance is repaid.
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How Is Credit Card Interest Calculated?
Banks and financial institutions use a formula to calculate the interest you will pay on outstanding balances.
Depending on the card, interest can be calculated daily or monthly.
Some credit card companies base credit card interest on your average daily balance.
In this case, your card lets your provider track your balance daily, adding charges and subtracting payments as they come in.
All the daily balances are combined at the end of the billing cycle. The sum is then divided by the number of days in the billing cycle to calculate the average daily balance.
The terms and conditions of your card will provide a detailed explanation of how your issuer calculates interest.
Is A Lower Credit Card Interest Rate Negotiable?
Lower credit card interest rates can be negotiated with your card issuers to help you put a bigger dent in your debt.
Note: The higher the interest rate, the more your payment goes to the creditor, not your balances.
Start with the card you’ve had the longest with the best payment history.
You could also start with the credit card with the highest interest rate unless you’ve had it for a short time.
Call the credit card company and ask for a lower interest rate, explaining why you want one.
Generally, issuers are amenable to interest rate breaks, though getting one may be easier for borrowers with low-risk behaviors. Low-risk borrowers have low balances and make timely payments.
Respectfully ask the issuer what they can do for you.
Remind them of your history with them, especially if you’ve been a good customer, and explain to them if there are extenuating circumstances.
The bank will prefer a lower interest rate over the risk of you defaulting.
What happens if a credit card balance isn’t paid off before the end of an interest-free period?
After a promotional period ends, different cards may treat lingering balances differently.
In the worst-case scenario, the card will charge deferred interest, which adds all the interest costs that would’ve accrued if the balance hadn’t had a promotional period.
Other cards may treat the lingering balance as a new balance subject to normal interest charges on the next statement.
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How Can You Get A Lower Credit Card Interest Rate?
Your credit card terms are negotiable, and you may get a lower interest rate simply by asking for one.
How well you have handled your existing credit will determine your chances of obtaining a lower rate, a larger credit limit, or any other benefit.
Someone who limits their credit usage and never misses a payment is more likely to be successful in negotiations.
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Final Thoughts
It’s important you now know some of the ways to avoid, lower, and reduce your interest payment when using your credit card.
If you pay off your monthly credit card balance, you will likely already use your grace period.
Whether you have a card balance, re-evaluate your budget to see if you can pay off your statement balance to reinstate your grace period.
Check your credit card terms and conditions to determine whether your credit provider offers a grace period; if not, look for another card.