For those who are used to being in debt, paying interest may seem unavoidable. Whether you are currently in credit card debt or just want to learn to use your credit cards more responsibly, this article will help you. In this article, I describe three smart ways you can avoid paying credit card interest. If you follow these methods, you could never pay credit card interest again!
Why You Should Never Pay Credit Card Interest
Imagine paying $113.66 for a $100 pair of shoes. That’s essentially what you’re doing when you pay credit card interest. The average credit card interest rate for interest paying accounts in 2015 was 13.66%.
When you pay interest on your credit card balance, you’re paying the credit card company for the convenience of paying for your purchases over time. That’s a convenience most of us would benefit from learning to live without.
It’s a good idea to get into the habit of only using your credit card for purchases you can afford (at least by the grace period – more on that below). This way, you can use your hard-earned money for more useful things rather than giving it to a credit card company for interest.
Know Your Credit Card’s Grace Period
First off – what is a grace period? A grace period is a time frame in which you are allowed to pay your bill without any interest. It’s the time from the last day of your billing cycle to the date your bill for that cycle is due.
Depending on when you time your credit card purchases, you could have over a month to pay off that charge before it incurs interest. Let’s take a look at my most recent credit card statement dates as an example:
- Cycle start date: June 22, 2016
- Cycle end date: July 22, 2016
- Payment due date: August 16, 2016
My grace period in this case is from July 23 to August 16. During that time, I can pay off the charges I made since June 22 without incurring interest. Let’s say I did purchase something on June 22. Maximizing the grace period, I have almost two months (until August 16) to pay for that charge without paying interest!
The trick here is to make purchases towards the beginning of your cycle start date in order to maximize the time you have to pay for it without being charged interest. This is a good strategy if you have to make a large purchase but don’t have the money right away. If you know you’ll have the money next month, this is a good way to pay for large purchases without taking out a loan.
One word of caution: carrying a large balance on your credit card has its disadvantages. If you run into an emergency that eats up your cash, you may not be able to pay off that large purchase you made before the grace period is over. In which case, you’ll end up paying interest. Also, having a high credit utilization ratio may lower your credit score. So be careful putting large purchases on your credit card.
All in all, knowing your credit card’s grace period is a good idea. Even if you don’t take advantage of it every billing cycle, you’ll know at what point you’d be charged interest on your purchases.
Pay Off Charges On Your Credit Card As You Make Them
If you’re not the type to wait over a month to pay off a charge on your credit card, this method may work better for you. In this method, you pay off charges on your credit card as you make them. This means that every time you make a purchase using your credit card, you transfer money from your bank account to cover the cost of the purchase.
It may sound like a lot of work if you tend to use your credit card often, but it ensures that you won’t pay any credit card interest. For some, that benefit makes this method worth it.
The key to paying off charges on your credit card as you make them is to develop a routine. It only takes a few minutes each day to log into your online account and make the transfer. You can make it a routine to do this every morning before work or every evening after dinner.
Just Pay Your Balance In Full Each Month
If knowing your credit card’s grace period and paying off charges on your credit card when you make them both sound like too much work, you can always just pay your balance in full each month. This is the classic, surefire way to never pay credit card interest.
On your credit card statement, you’ll see a number labeled “New Balance”. This amount is what you owe to the credit card company as of your billing cycle end date. It includes any fees charged. Pay off this amount in full each month and you’ll avoid paying credit card interest.
If you’re having trouble paying your balance in full each month, you may be charging more purchases to your credit card than you can afford. To prevent this, keep track of all the purchases you put on your credit card. As you make a purchase, ask yourself: “do I have the money in my checking account now to pay for this?” If the answer is no, do not put that purchase on your credit card.
If you could learn to use credit cards without ever paying interest, you’d be in good financial shape. Credit card interest rates are high enough to cost you a lot of money in the long run if you don’t pay off your balances on time.
Three smart ways to never pay credit card interest are to:
- Know your credit card’s grace period
- Pay off charges on your credit card as you make them
- Just pay your balance in full each month
Mastering these techniques will save you a lot of money in the long run. You don’t even have to do all three in order to never pay credit card interest. Using just one of these methods will help tremendously!
Which of these methods to never pay credit card interest would you use?