How To Avoid Interest on a Credit Card: Make Your Card Work for You
Knowing how to avoid interest on credit cards is a critical component of managing your personal finances.
Contributing Writer at Tally
April 8, 2022
If you currently own a credit card — or are considering opening one for the first time — it’s important that you understand how credit card interest works.
Credit card interest rates tend to be quite high compared to other types of loans. The interest also compounds, which means you are charged interest on top of interest. If you don’t manage your credit cards properly, you could quickly find yourself in debt.
If you’re interested in learning how to avoid interest on credit cards, you’ve come to the right place. In this article, we’ll provide a high-level overview of how credit cards work along with the things you can do to avoid being charged interest by your lender.
How credit cards work
When you open a new credit card account, your lender will define your interest rate, commonly expressed as the annual percentage rate (APR). Interest rates are essentially the costs associated with borrowing money.
Credit card interest rates tend to be quite high, especially when compared with other lending options. The average APR is between 15% and 22%.
Credit card interest also compounds. This means that you are charged interest on top of the interest that you’ve already accumulated. When your lender charges you interest, the interest is added to your existing credit card balance. The next day, the amount of interest that you owe is calculated based on this new balance.
Paying off your credit card
When you make a purchase on your credit card, it will be added to your balance for that billing cycle. Billing cycles tend to last between 28 and 31 days. At the end of your billing period, you will receive your monthly statement. The statement includes the amount that you owe to the lender.
It will also include a due date of when you owe payment on this balance. The time between the end of the billing cycle and the due date is known as the grace period. Grace periods typically last around three weeks.
If you still have a balance remaining after your due date passes, then your lender will begin charging you interest on your outstanding balance.
As a quick note, you may find lenders who offer introductory APRs upon opening a new account. For instance, your credit card company may offer 0% interest for one year. This is one possible way to avoid credit card interest.
However, as soon as your intro period expires, your lender will start charging interest on any outstanding balance you have on your account. So, while intro periods can be useful in helping you avoid credit card interest in the short term, they are not an effective long-term strategy for avoiding interest on credit cards.
How to avoid interest on credit cards without an outstanding balance
If you currently do not have an outstanding balance on your credit card, then the best way to avoid interest is to pay your statement balance on time and in full each month. Your lender will not begin charging interest until after your due date. So, if you’re able to pay your balance in full by your due date, then you can avoid credit card interest.
It’s important to note that you need to pay your full balance to avoid interest charges. In addition to your balance and due date, your credit card statement will contain a required minimum payment. If you only make the minimum payment, you will avoid being charged late fees or penalty APRs, but you will not avoid regular interest charges.
Here’s a quick synopsis of possible scenarios:
Pay your balance in full by your statement due date: You are not charged interest.
Make the minimum required payment only: You are charged interest on the remaining balance.
Make less than the minimum required payment: You are charged interest on your balance — possibly at a higher interest rate than your regular APR — as well as late payment fees.
Let’s look at a few examples. Say you make $500 in credit card purchases in a month. At the end of the month, you receive a statement indicating that your balance is $500, your minimum required payment is $25 and your due date is March 21. Here is what the possible scenarios would like based on these details:
If you pay your $500 balance in full by March 21, your credit card issuer will not charge you interest.
If you pay the $25 minimum, you are charged interest on the remaining balance of $475.
If you don’t make any payment, late fees are added to your balance. Let’s say a $15 late fee is added — then you will be charged interest on your outstanding balance of $515.
In summary, a good credit card management strategy is to pay your credit card bill in full by your statement due date. If you can do so, you’ll avoid being charged interest. You can consider strategies like the 15/3 credit card payment hack to help pay your balance on time and in full.
How to avoid interest on credit cards with an outstanding balance
If you currently have credit card debt, you may be wondering how you can avoid being charged additional interest. As we’ve touched on above, the only way to be interest-free is to pay off your balance in full every month. So, how can you get there if you currently have a balance? Consider some of the tips below.
Avoid new purchases
To avoid credit card interest, you need to pay down your balance. As such, you need to keep your balances as small and manageable as possible. Try not to put any new purchases on your credit card until you can pay down your balance.
You could pay with a debit card, pay with cash or set up a budget to help control your spending.
Make your minimum monthly payments
Paying down debt can be challenging. However, it’s important that you at least make your minimum monthly payment. Doing so prevents you from being charged late fees or penalty APRs, both of which will grow your existing balance.
Use debt consolidation loans or balance transfer cards
Debt consolidation loans and balance transfer cards are both useful options to help pay down your existing balances. They can allow you to pay off your debt at a lower interest rate than the one on your current credit card.
The best credit cards for balance transfers offer a promo period, often with 0% APR, giving you a period of time in which you can pay down debt without having to worry about being charged additional interest.
Try a credit card payoff app
Another option to help pay down and manage debt is a credit card payoff app, like the one offered by Tally†. Tally’s credit card payoff app helps you manage due dates and pay down debt quickly and efficiently. With the help of Tally, you can potentially pay off your existing balances in full so that you no longer have to worry about paying interest on your credit cards.
Managing your credit cards can prevent interest charges and debt
When it comes to managing your personal finances, it’s important that you understand how credit cards work and how to avoid interest.
Ideally, you’ll pay off your statement balance in full by the due date. Should your due date pass and you are still carrying a balance, your lender will begin charging you interest.
Because credit card interest compounds, paying off your balance will become more and more challenging. In these cases, it’s a good idea to make your minimum monthly payments and try not to make any new purchases. You can also consider debt consolidation loans and balance transfer options.
A credit card payoff app like Tally can help you pay down your balances and manage your due dates with a lower-interest line of credit. Tally is useful for paying off existing balances and for managing future credit card bills so that you stay out of debt.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.