How You Can Avoid Credit Card Interest | Global News Avenue

Rule No. 1 of using credit cards: Avoid credit card interest. (Or at least it should be.)

Average credit card interest rates climb to 20.75% According to CNET sister site Bankrate. With interest rates so high, it’s easy to see how credit card balances can quickly balloon beyond the original amount borrowed. If you only pay Minimum paymentproceed with the purchase, or both.

Although some Credit cards have lower interest rates and the best balance transfer credit card Comes with a 0% APR promotional period, and if you’re able and willing to use your credit card in certain ways, you can avoid interest charges entirely. Here’s how you can avoid credit card interest now and in the future.

How to avoid credit card interest

You can avoid credit card interest by paying off your balance each month. Making a plan for how you will use your card for purchases and paying your statement balance each month can help you avoid racking up an unmanageable balance, which can lead to Huge credit card debt.

There are also several types of credit cards that allow you to Avoid accruing interest For a limited time.

Here’s how to maximize the benefits of your credit card while avoiding credit card interest altogether.

1. Pay your credit card statement balance in full every month

Using your card only for planned purchases with cash payments may be the best way to avoid credit card interest. First make a monthly budget or spending plan, only the plan purchase fee will be charged. For example, you can budget a certain amount each month for groceries, gas, and miscellaneous purchases, charge those purchases to your credit card, and then use the funds you budget to pay your bills.

As long as you pay your Credit card statement balance Full monthly payment by you Payment due dateyou will never be charged a dime in interest.

2. Use the 0% APR introductory card for new purchases

Available with some credit cards Promotional introduction 0% annual interest rate Cycles, usually last 9 to 21 months. This means that, upon approval, cardholders can make purchases without paying interest, provided they make at least the minimum payment on the card on time each month.

These offers give consumers some extra time to pay for large purchases or unexpected expenses. However, the entire balance must be paid off before the end of the introductory period, otherwise interest will begin to accrue on the remaining balance owed at the card’s regular interest rate. floating rate.

3. Consolidate debt with a balance transfer credit card

Some cards also offer Introductory 0% APR on Balance Transfers Up to 21 months. Once approved, you can consolidate other debts and avoid accruing interest during the introductory period, as long as you make your minimum payments on time each month.

However, most cards charge a balance transfer fee, so you’ll pay an additional 3% to 5% for each debt balance you transfer. However, it will take a year or more to pay off the debt No interest charges More than enough to cover the cost of this fee.

As with the introductory 0% APR card, you should work out a repayment plan before applying for a balance transfer card, as any balance remaining after the introductory offer ends will begin accruing interest at the card’s regular variable APR.

4. Don’t use credit cards for cash advances

this best credit card Cash can also be withdrawn via ATM or credit card convenience check. However, Credit card cash advance An upfront fee is required, usually 5% to 10%. The APR on a credit card cash advance is also typically higher than the regular APR you pay on your purchase.

To make matters worse, a credit card cash advance doesn’t give you a grace period, which is a period of time between the statement due date and the due date when you have to pay the bill before interest starts accruing. Without a grace period, this means you will be charged credit card interest on the cash advance from day one.

What’s the best way to avoid this? Don’t use a credit card for a cash advance.

5. Use debit card or cash

If you have a habit of overspending and don’t want to be tempted, you can use debit card Or purchase with cash. You often miss out on some of the benefits of credit using this strategy, including the potential Best Credit Card Rewards ——Although there are Debit cards that offer cash back rewards. However, avoiding debt may be worth missing out on credit card benefits.

prepaid debit card If you prefer using a plastic card for purchases but don’t want to use a card tied to your account, it can also prevent you from spending more than the cash in your account. checking account.

6. Build an emergency fund

Even with a budget and the best-laid plans, anyone can get hit Unexpected expenses, such as medical bills. have a emergency fund can help you pay for these expenses while avoiding credit card interest.

Most experts recommend having at least three to six months’ worth of expenses saved in a dedicated account in case of emergencies like a job loss, a drop in income, or a health crisis. By starting to build this type of safety net, you can reduce the likelihood that you’ll need to rely on a credit card to pay regular bills and household expenses in the future.

How credit card interest works

Any balance on your credit card will accrue interest Past the payment due date. You can find out the exact percentage by checking the annual percentage rate (APR) on your credit card statement.

Let’s say you make an emergency purchase of $3,000 using your credit card, and the annual interest rate is 20.75%. in order to avoid Pay late feeswhich will also leave you with imperfections credit scoreyou enforce Minimum paymentusually equal to 2% of your balance, or $60.

If you make only the minimum payment, nearly 80 to 85 percent of your monthly payment in the first year will go toward interest. With $60 monthly payments, that would take you nearly 10 years and cost you $3,997 in interest alone, nearly $1,000 more than the original amount you charged to the card.

when you Pay more than the minimum payment on your credit card.

use a Credit card repayment calculator Find out how long it will take you to pay off your balance and how much interest you’ll end up paying.

How is credit card interest calculated?

Credit card interest is calculated based on your credit card’s annual percentage rate, but as the name implies, it’s not added to your account every year. Instead, the credit card company calculates the average daily balance you owe and charges a recurring daily rate based on the annual percentage rate and the number of days in the billing cycle.

To calculate the daily periodic interest rate, divide the annual interest rate by the number of days in the year (usually between 360 and 366, depending on the formula used by your credit card issuer).

You can then use that rate to calculate credit card interest:

Daily average balance x daily regular interest rate x number of days in the billing cycle = interest charged monthly

For example, let’s say you have an average daily credit card balance of $1,500, an APR of 23.49%, and a 32-day billing cycle. Here’s how to calculate the interest you owe for the month:

• 0.2349 / 360 = 0.0006525 daily periodic rate
• $1,500 x 0.0006525 x 32 days = $31.32 interest expense

How credit card debt affects your credit score

Also keep in mind that credit card debt can cost you more than you pay in interest — and it can also damage your credit score. You owe 30% of your debt FICO credit scorethe most widely used credit score, and having too much debt can signal to creditors that you may be a credit risk.

Use less than 30% of your available credit (also called your credit) credit utilization ratio — can help improve your credit score, and most experts say keeping it below 10% is better. So for every $5,000 of available credit you have, you want to use no more than $1,500 per month, and preferably $500 or less.

No matter how much of your credit limit you use, you’re required to pay off your entire credit card statement balance by the monthly due date.

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