How to Avoid Interest on a Credit Card

The buy-now, pay-later concept of credit cards is great until the interest adds up. If you enjoy spending but hate the extra interest, you’re not alone. You can use your credit card and avoid paying interest. Read on to learn how to avoid interest on a credit card. Keep reading to see how you can get personalized offers from our trusted partners through MoneyLion!

Table of contents

• Understand how credit card interest works

• Why avoiding credit card interest is important

• How to avoid credit card interest

Understand how credit card interest works

Credit card interest is a fee that is tacked on when you don’t pay the full balance of your credit card by each billing cycle. Interest is calculated based on your annual percentage rate (APR) and the balance carried. The APR determines the amount of interest you will accrue, as it typically ranges from 10% to 30%. Generally, the longer your payment period and the higher the debt you have, the more interest you will be charged. 

Why avoiding credit card interest is important

Every time you carry a balance on your credit card, those interest charges start piling up. And they can add up fast. No one wants to pay more than they borrowed. Because credit cards typically have higher interest rates than other types of financing such as mortgages and personal loans, you’ll pay far more than what you charged. 

But it’s not just about the money. Paying interest can also put a damper on your credit score, like a rain cloud on a sunny day. When you carry a high balance, it can make you look like you’re not handling your finances -— and that’s not a good look to the credit bureaus. This could lower your credit score, which makes getting a lower interest rate even more of a challenge. 

How to avoid credit card interest

You can take a few simple steps to avoid credit card interest and keep more of your hard-earned cash in your pocket.

1. Select a card with a low-interest rate

With a lower interest rate, you’ll have smaller monthly payments and lower amounts of interest to pay. Some credit cards offer introductory rates as low as 0%, giving you an opportunity to maximize your savings while paying off debt. Take time to read the fine print associated with any promotional offers to ensure you understand when the low-rate period will expire and make sure that you can plan accordingly. 

2. Pay your balance in full every month

This is the most effective way to avoid interest charges. By paying off your balance each month, you’ll never have to worry about paying interest on your purchases. Without a balance, there is nothing to assess the interest on. 

3. Make payments on time

Making timely payments is an effective way to reduce or avoid credit card interest. Late payments come with fees and can lead to an increase in your interest rate, so it’s important to make sure your payments are submitted on time. 

Recommended: What Is the Best Strategy to Avoid Paying Interest on Your Credit Cards?

4. Avoid high APR cash advances 

There are two types of fees associated with cash advances — upfront fees and interest charges. The upfront fees can be a flat fee or a percentage of the cash advance, and they get posted to your account right away. The flat fees usually range from $5 to $12, or 3% to 8% of the cash advance amount.

But unlike regular purchases on your credit card, cash advances don’t usually come with a grace period. That means you’ll start racking up interest charges from Day 1. You’ll want to avoid cash advances entirely if you’re trying to cut out interest.

4. Consider a balance transfer credit card

With a balance transfer credit card, you transfer your existing credit card balance to a new credit card with a lower interest rate, usually one with a promotional 0% interest rate for a certain period of time.

Keep in mind that most balance transfer cards come with a balance transfer fee, typically around 3% to 5% of the amount you’re transferring. If you do the math and find that the savings from the lower interest rate outweigh the balance transfer fee, it could be worth it in the long run.

Recommended: How to Transfer Credit Card Balance

5. Make extra payments on your balance

By paying more than the minimum amount due each month, you’ll be chipping away at your balance faster and reducing the amount of interest that accrues.

Here’s why this works: Credit card interest is calculated based on your average daily balance. The more you owe, the more interest you’ll accrue. But by making extra payments, you can reduce your balance and the amount of time it takes to pay it off, which could result in less interest.

6. Improve your credit score

When you have a higher credit score, you’re seen as less of a risk to lenders, which means you’ll likely qualify for lower interest rates and better credit card offers.

A few things you can do to improve your score include: 

• Make sure you’re paying all your bills on time and in full each month. Late payments and missed payments can really hurt your credit score, so staying on top of your bills is key.

• Keep your credit utilization low. That means not using too much of your available credit. Ideally, you want to keep your credit utilization below 30%. If you have a credit limit of $10,000, it’s generally recommended to try to keep your balance below $3,000.

• Monitor your credit report regularly and dispute any errors you find. A mistake on your credit report could be dragging down your score without you even realizing it.

If you are working on building up your credit or improving your credit score, MoneyLion is here to help! Credit Builder Plus (CB+)* is our powerful credit-building membership, and it’s designed to help our members build or repair their credit, save, establish financial literacy and track their financial health. CB+ can help you build or improve your credit with access to a Credit Builder Plus loan. A Credit Builder Plus loan is a small loan that is held in a secure account while you make monthly payments. As you make payments, they are reported to the major credit bureaus, which can help boost your credit score with on time payments.

CB+ loan is a smart way to help improve your credit while paying off your debt. By improving your credit score, you can qualify for lower interest rates on future loans or refinancing options. And by paying off your Credit Builder Plus loan on time, you can reduce your debt-to-income ratio, which could also improve your credit score.

7. Negotiate your credit card interest rates

If you’re carrying a balance and paying high-interest charges, it’s worth giving your credit card company a call and asking whether it can lower your rate.

Not every credit card company will be willing to negotiate, but it’s worth a shot. Just be prepared to make your case and explain why you deserve a lower rate. Maybe you’ve been a long-time customer, or you’ve been making your payments on time and consistently paying more than the minimum amount due.

👉 How to Lower Credit Card Interest Rate

8. Consider using a debit card

With a debit card, you’re spending money you already have in your account, rather than borrowing money and paying interest charges. Plus, using a debit card can help you avoid overspending and racking up even more debt.

Using a debit card has some downsides, such as missing out on the rewards and cashback that some credit cards offer. You also won’t be building your credit history. But if you’re struggling with high-interest rates and want to avoid paying more than you need to, a debit card could be a good alternative.

👉 What is the Difference Between a Credit Card and a Debit Card?

The Bottomline on Avoiding Credit Card Interest 

Avoiding credit card interest is key to financial freedom. Choose a low-interest rate card, pay on time, avoid cash advances, take advantage of promotional balance transfers, make extra payments, improve your credit score and negotiate your rate if possible. With these tricks, you can conquer credit card debt and keep more money in your pocket. 

FAQs

Is there a way to reduce the amount of interest I am paying on my credit card?

One way to reduce the amount of interest paid on a credit card is to negotiate with the issuer for a lower rate or ask for a balance transfer card. 

What should I do if I can’t pay the full balance on my credit card each month?

If you cannot pay the full balance each month, make sure to at least pay the minimum due on time to avoid late payment fees. 

What are the best ways to avoid interest on my credit card?

The best way to avoid interest on a credit card is to always pay your balance in full and on time each month and consider using other payment methods instead of relying solely on credit cards.