How to Avoid Credit Card Interest

The Federal Reserve’s rate hikes are pushing up interest rates on credit cards, which means carrying debt is more expensive and climbing out of it could take longer.

Part of the problem is that credit card balances have grown larger thanks to inflation. Credit card balances are up 11% overall since 2021 and even higher in some cases, according to a June VantageScore report. Gen Zers and millennials ran up balances of 30% and 22% higher, respectively, while low-income consumers saw a nearly 25% increase in card balances.

Ideally, aim to pay off balances and avoid interest charges. But if that isn’t possible, here are ways to reduce the interest you pay as more Fed rate increases lie ahead.

[Read: Best 0% APR Credit Cards.]

Why Avoid Credit Card Interest?

Credit card interest rates and annual percentage rates are usually the same, unlike loans, and among the highest rates you can pay to borrow money. What makes credit card interest so troublesome is compounding.

When you’re charged interest on your credit card, the amount is added to your balance. And when you carry that balance month to month, you will pay interest on interest. That’s part of why it’s so hard to get out of credit card debt.

The best way to handle credit card interest is to avoid it in the first place. That means taking advantage of your card’s grace period and other no-interest options, always paying your bill in full and on time, and moving balances as necessary.

How to Make the Most of Your Credit Card Grace Period

Credit card purchases have a grace period of at least 21 days with no interest charges between the end of your card’s billing cycle and when your credit card bill is due. In other words, you won’t be charged interest on your credit card balance until after your payment due date.

If you carry a balance, you will lose your grace period. Interest charges will apply to the unpaid portion of your balance and to purchases in the new billing cycle starting on the date of each purchase. Note that credit card grace periods only apply to purchases, not to cash advances or balance transfers.

You can use your credit card’s grace period to your advantage by timing a purchase for the day your statement period opens. Then you get more than a month and a half to pay it off before interest charges apply — your entire statement period, plus the grace period of at least 21 days.

Need more time with no interest? Some credit cards offer introductory interest-free periods of 12 to 21 months. With a 0% APR card, you can make monthly payments on your balance and won’t be charged interest until the introductory period ends and the regular APR applies.

How to Avoid Paying Interest on a Credit Card

The simplest way to avoid credit card interest charges is to never carry a balance. You can do this by:

Paying your bill in full. If you also pay on time each month, you won’t be charged interest on your transactions. “Paying your credit card in full every month is the best way to avoid interest payments,” says John Schmoll, founder of the personal finance website Frugal Rules.

Moving debt to a new balance transfer credit card. When you’re faced with a balance you can’t pay in full by the due date, a 0% APR on balance transfers can save on interest. However, you will likely pay a fee, usually 3% to 5%, to transfer each balance. Also, consider whether you can avoid running up card balances again, says Jeff Richardson, VantageScore’s senior vice president of marketing and communications. “A concern is going back to that card that doesn’t have a balance,” Richardson says. “Now you have two balances, two interest rates, and it really will begin to be a challenge to meet those obligations.”

Planning major purchases. Before you book a big trip or buy a houseful of furniture, look at your budget and card statement closing date to take advantage of the grace period.

Opening a 0% introductory APR card. If you need more than a month or two to pay for your purchases, a 0% APR card can offer an interest-free way to do so. Just be sure you can pay off the balance before interest charges apply.

[Read: Best Balance Transfer Credit Cards.]

How to Reduce Your Credit Card Interest

If completely avoiding interest isn’t your reality right now because of inflation pressures, how can you reduce the credit card interest you pay? Decreasing your debt by consolidating it or making extra monthly payments can help alleviate interest-rate stress.

“First and foremost, pay down those balances as low as you can,” Richardson says.

Here are some ways to reduce your credit card interest charges:

Choose a debt payoff strategy to lower your balance and your interest charges. Use the debt avalanche, snowball or blizzard method to pay off credit card debt. Choose what will work best for you and get started.

Make multiple monthly payments to chip away at a big balance. Repaying your full balance might be more than you can handle, but could you split it up over two paychecks or make smaller weekly payments?

Consider a debt consolidation loan or a balance transfer credit card. You can move your high-interest credit card balances to a debt consolidation loan or a 0% APR balance transfer card. You will still pay interest on a loan or a fee on each balance transfer, but these costs are less than allowing credit card balances and interest charges to grow unchecked.

[Read: Best Cash Back Credit Cards.]

Can You Negotiate a Lower Credit Card Interest Rate?

You can negotiate lower credit card interest rates with your card issuers to help you put a bigger dent in your debt.

“The higher the interest rate, the more of your payment goes to the creditor and not to your balances,” Richardson says.

Start with the card you’ve had the longest that has a strong payment history. You could also begin with the credit card that has the highest rate, unless you haven’t had it long.

Call the credit card issuer and ask for a lower interest rate, explaining why you are seeking a reduction. Generally, issuers are amenable to interest rate breaks, though Richardson says getting one may be easier for borrowers with low-risk behaviors. Low-risk borrowers tend to have low balances and don’t miss payments.

Ask politely what the issuer can do for you, Schmoll says. “Remind them of your history with them, especially if you’ve been a good customer,” he says. “If there are extenuating circumstances, explain that to them. The bank will obviously prefer earning a little less in interest over the potential of you defaulting.”

More from U.S. News

How to Improve Your Credit Score

Carry a Credit Card Balance vs. Pay in Full: What’s Better for Your Credit?

Are Credit Card Installment Plans Worth It?

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