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In this article:
- 4 Ways to Avoid Credit Card Interest
- How to Lower Your Credit Card APR
- How to Reduce Your Interest Charges
Credit card interest rates are on the rise following the second Federal Reserve rate hike of 2022, and five more are projected through the rest of the year. There are, however, steps you can take to insulate yourself from rising rates.
If you pay off your credit card balance in full every month, for instance, the interest rate on the card doesn't really matter. Whether the rate is sky-high or the lowest available, it will never come into play, thanks to the grace period included in the terms and conditions of virtually all credit cards.
And that's not the only thing you can do to avoid interest. Here's what you need to know.
4 Ways to Avoid Credit Card Interest
Credit cards generally have relatively high interest rates, which can easily take a toll on your financial plan. Here are four ways you can stop paying interest on your balance.
1. Pay Your Bill in Full Every Month
Most credit cards offer a grace period, which lasts at least 21 days starting from your monthly statement date. During this time, you can pay your full balance without incurring interest on your purchases.
Keep in mind, though, that if you carry even a small balance from one month to the next, you'll lose your grace period on new purchases—meaning they'll start accruing interest immediately—until you pay the balance in full.
2. Avoid Cash Advances
Unlike new purchases, cash advances don't get a grace period. What's more, the annual percentage rate (APR) on cash advances is often higher than the rate you'll pay for purchases, and you'll also typically be assessed a cash advance fee, which can be 5% or more of the advance amount.
In general, it's best to avoid cash advances for these reasons unless the only other options are even costlier, such as a payday loan.
3. Use 0% Intro APR Periods Wisely
Many credit cards offer an introductory 0% APR promotion on new purchases. These promotions make it easier to finance large expenses and pay them down over time without having to worry about interest. Depending on the card, the introductory 0% APR promotion can last anywhere from six to 21 months. If you don't pay off the balance in full by the end of the introductory period, the card issuer will begin to charge interest on the remaining balance.
Regardless of how long your promotion is, make a plan before you get the card to pay it in full before the 0% APR period ends. This is especially important with some store credit cards, which use a deferred interest arrangement instead of a true 0% APR promotion. If you don't pay off the balance on a deferred interest plan, the card issuer will charge interest retroactively based on the original balance.
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4. Utilize Balance Transfers
If you have a large balance on your credit card, paying it off will likely take time. Fortunately, there are many credit cards that also offer introductory 0% APR promotions on balance transfers. You can move some or all of your balance over to the new card and get anywhere between 12 and 21 months to pay it off interest-free.
If you can plan it right, you may be able to pay off the full balance without paying another dime in interest. Keep in mind, though, that balance transfer cards typically charge an upfront fee of 3% to 5% of the transfer amount. Also, if you make new purchases with the card while you're still paying off your balance transfer, they may not be subject to a grace period unless the card also has a 0% APR on purchases.
How to Lower Your Credit Card APR
Taking advantage of your credit card's grace period is a great way to avoid interest charges, but there's always the possibility of paying interest, so it's still a good idea to look for opportunities to lower your APR. Here are some options to consider:
- Ask your card issuer to lower your interest rate. Some credit card companies may be willing to lower your interest rate, especially if your credit has improved since you first opened the account.
- Apply for a new card. If you can't get the results you want on your existing cards, you may be able to qualify for a lower interest rate on a new credit card and start using it instead. Credit unions, in particular, tend to offer lower interest rates than banks and are legally required to cap their APRs at 18%.
- Improve your credit. If you haven't already, take the time to work on building your credit score. This will give you more opportunities to obtain a lower credit card APR in the future.
How to Reduce Your Interest Charges
If you have credit card debt that you can't pay off immediately, there are plenty of ways you can cut your balance and reduce your interest charges:
- Make multiple payments each month.
- Create a debt repayment plan and use the debt avalanche or debt snowball method.
- Use a personal loan to consolidate your debt into a lower rate and more structured repayment plan.
- Use savings to pay off a chunk of your balance.
- Take advantage of a balance transfer credit card.
- Consult with a credit counseling agency and potentially get on a debt management plan.
Prioritize Your Credit Score
While there are several different steps you can take to keep your credit card interest in check, one of the best approaches is to build your credit history. The better your credit score, the easier it will be to qualify for lower interest rates, 0% APR and balance transfer credit cards and debt consolidation options that can help you save money.
As you work to build credit, Experian's credit monitoring service can help you keep track of your progress by providing free access to your FICO® Score☉ and Experian credit report, as well as real-time alerts to keep you up to date on changes to your credit report.
