If you have a shiny new credit card in your pocket, you can do yourself a favor by learning how to never pay credit card interest. All too often, people fall into the trap of having to pay credit card interest on their ever-rising balances.
You can save yourself from this disagreeable fate by simply avoiding the actions that lead to seemingly endless credit card bills. Get started down this path by exploring this guide on the importance of avoiding credit card interest and ways to accomplish this feat.
Importance of Avoiding Having to Pay Credit Card Interest
As you carry a balance on your credit cards month to month, interest applies to the total on a daily basis, creating a vicious cycle. At a 15% APR, for example, you will pay $13 a month in interest for every $1,000 you owe. If you have anywhere near the average U.S. household debt amount of $8,187, then you may end up paying almost $1,500 a year in interest payments alone.
With rising credit card balances, your minimum payments and interest charges can quickly overwhelm your finances. Having to pay so much interest can make it even more difficult to dig your way out of debt and restore your credit score. In fact, it can quickly feel far too difficult to pay anything past the minimum payment.
You must pay well above the minimums, however, to dig yourself out of debt. Otherwise, you are simply paying interest without making a dent in your balance. By paying above the minimums, you can potentially shave years off your repayment schedule.
How to Avoid Making Any Interest Payments on Your Credit Cards
For great credit card management, you must pay off the balance in full each month or interest will start to build. Therefore, the simplest way to never pay credit card interest is by avoiding carrying a balance on any of your cards.
To accomplish goal, you will need to watch your spending carefully. Make sure that you only make purchases that you already have covered by money already in your bank account. Carefully track your spending and earmark the funds in your account for your bill. At the end of the month, make your credit card payment in full to zero out the balance.
Never carry a balance month to month and especially resist the temptation to pay interest on a purchase over the course of several months. Even if you can acquire a zero interest deal, this is still not a great idea, unless you can see well into the future. Otherwise, you simply cannot guarantee that you can make the required payments in full. If you do not fulfill the repayment terms in time, you will be hit with the full interest charges, starting from the purchase date.
When you avoid carrying a balance on your credit cards, you can avoid paying any interest. The interest payments only begin at the start of the next month. Once they begin, however, the interest begins to compound daily at the rate set by your APR. If your balance is high enough, the interest charges could even surpass the minimum payment amount that is due each month. When this happens, your balance could start to grow out of control even without actively using your card.
Paying your balance in full at the end of every month is the way to go to never pay credit card interest. If your balance has already snowballed, however, you may have some options in bringing back under control.
Other Ways to Eliminate or Reduce Your Interest Payment
When faced with credit card balances you cannot pay in full, you can take a few steps to gain control over these bills. You can start by looking for a zero-interest deal on a credit card that offers a balance transfer. With the transfer, you place the debt on a different card, saving yourself up to 12 months in interest payments.
Although not ideal for purchases, getting out of debt is your number one goal once you start carrying balances from month to month. So, this is a good option if you are able to fulfill the repayment terms and eliminate the balance within the grace period.
You can also eliminate the balance by paying it off with a personal loan. Generally speaking, taking out debt to cover debt is also not a great idea, but if it significantly lowers your interest rate, it might be worthwhile. You should shop around to find the best rates available to you. Check with your bank or credit union along with many other lending institutions to explore their personal loan products and terms.
Do not wait too long to look into these options, as growing debt balances can quickly lower your credit score. Without a solid credit score, it can be difficult to acquire balance transfer cards with the special promotions you need to gain control of your debt. You may also find it difficult to source a personal loan at a lower interest rate than your high balance credit card with a low credit score.
If you cannot qualify for these options, you can pay down your credit card balances by paying above the minimums. Consider paying off your smallest card balance first, then moving onto the next. As you pay off each card, you can apply the monthly payment amounts to your other credit card bills. Over time, this process will help you pay down the credit cards faster and faster until you have zero balances once again.
Once you restore your balances to zero on all your cards, put them away and only use them enough to keep the accounts open. You can use one of your cards to practice the method that will ensure you never pay credit card interest to promote the great health of your finances.
Benefits of Using Credit Cards Responsibly
Responsible credit card use can save you from the frustrating experience of trying to fight interest and pay down your balances. When you pay off your balance at the end of each month, you keep more of your money in your pocket and still receive the rewards from using your cards.
You can actually gain bonuses to use as you wish as you make a few charges and pay them off at the end of the month. If you carry the balances, however, your interest payments will quickly eclipse any rewards you could potentially receive.
When you commit to the best practices that will ensure you never pay credit card interest, you can live without the stress that high debt causes. You can also keep more money in your pocket as you avoid having to pay high interest rates on your balances.
Dana George-Berberich is a freelance reporter and novelist. She has written finance articles for newspapers across the country and for companies like Dun & Bradstreet and Bankrate.
