Credit cards can be a convenient way to make purchases, earn rewards, and even travel. If you’re new to credit, it’s important to manage your credit card responsibly, and part of that is understanding how credit card interest works. With the right strategies, you can learn how to effectively manage interest and avoid excess credit card debt.
How to avoid interest on a credit card
Last Updated: February 28, 2024
5 min read
Key Points About: Avoiding Credit Card Interest
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You could avoid credit card interest by paying off your statement balance by the due date.
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Even if you can’t pay the full balance off, making larger or multiple credit card payments may help you lower interest.
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A balance transfer can help you manage higher rate credit card debt.
Did you know?
With responsible payments, a credit card balance transfer from a high-interest card may reduce the amount of money you spend on interest. Some cards offer low-introductory APR promotions for balance transfers.
How does credit card interest work?
Credit cards are a type of revolving credit that allows you to borrow money up to your credit limit each month. And credit card interest is the cost you pay to the lender to borrow money.
Credit card interest accrues based on your annual percentage rate (APR), which, according to the Office of Financial Readiness, may be influenced by your credit score. Based on your APR, credit card companies calculate your daily interest rate (your APR divided by 365).
If you don’t pay off your credit card balance by the due date, typically your credit card company will apply an interest charge to your account. Interest is compounded, meaning that it’s calculated based on the original amount you owe plus any interest that has built up. So, you may be paying interest on top of interest plus the original principal amount. So, what are effective strategies to avoid or limit credit card interest? The first thing you would need to understand is your grace period.
5 ways to avoid or limit credit card interest
Leverage your grace period
If your credit card issuer offers it, you may have a grace period. Your grace period is the time between the end of your billing cycle and your payment due date. During this period, you may not be charged interest on new purchases if you pay your balance in full. But if you only make the minimum payment (or less than the statement balance) your grace period won’t apply, and interest will be charged as normal.
The length of your grace period depends on your credit issuer. But, according to the Federal Trade Commission, under the Credit CARD Act of 2009 , your grace period will be no less than 21 days. If you are a Discover® Cardmember, your grace period will be at least 25 days from the end of the billing period, or a minimum of 23 days for billing periods that start in February. Information about your grace period may be available in your cardmember agreement. Most credit cards don’t provide a grace period on cash advances or balance transfers.
To sum it up, if you pay off your credit card balance in full during your grace period (by your due date), you typically won’t pay interest on purchases you made during that statement period.
Pay off your balance in full each month
It’s not always possible to pay off your credit card balance every month. Check out our credit card interest calculator to get estimates on how much you could save on interest by increasing your monthly payment.
Even if you can’t afford to pay your balance in full, paying more than the minimum payment could reduce the interest you pay, and reduce the time it takes for you to pay off your debt. If you’re a student and new to credit cards, a student card could help you build good habits.
Get a credit card with a balanced transfer offer
A balance transfer offer can help you manage credit card debt. If you have a high interest credit card, a balance transfer can allow you to move that debt to a card with low interest. However, it’s important to note that the low APR offer on the credit card is temporary. These are typically introductory rates that will expire when the promotional period ends. If you can’t pay off the balance in time, you may get charged a regular interest rate when the promotional period ends.
Additionally, some credit card issuers charge a balance transfer fee, which may vary between 3% to 5%. Do some calculations to ensure a balance transfer would help you save money on interest.
Enroll in autopay
One way that you can help manage your credit card bill is to enroll in autopay. Auto pay allows your credit card issuer to automatically take payments for your credit card account from an account of your choosing on the day you select. Autopay can help you avoid late payments and late fees.
Limit cash advances
Consider the type of credit card transaction that you’re doing if you want to avoid interest charges. For example, interest charges on cash advances tend to be different than interest on regular credit card purchases.
Cash advances allow you to borrow money against your credit limit. They begin accruing interest immediately, and depending on your card issuer, they can come with a cash advance fee.
If you need to borrow money, do your research to see if a cash advance is right for you and your budget.
How do credit scores affect your interest rate?
According to the Federal Trade Commission, having a higher credit score may qualify you for a lower interest rate. So, you could possibly save money on interest by keeping your credit score up.
You can maintain a good credit score by practicing good credit management. The Federal Trade Commission recommends the following credit tips:
- Make on-time payments on your credit account.
- Manage how much you are using on your credit cards.
- Build a long credit history (if you don’t have a credit history, a secured credit cards can help).
- Limit the number of new credit applications that you make.
- Have a good mix of different types of credit accounts (credit accounts can include personal loans, credit cards, and mortgages).
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Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.