Author: Mikey Ross
Paying interest on your credit card can be a significant burden on your budget and put a strain on your financial stability. Fortunately, it is possible to avoid interest payments if you know what to look out for. Here are four simple steps to minimize or even eliminate credit card interest.
What is the Process Behind Earning Interest on a Credit Card?
Credit cards are convenient and can be a helpful way to purchase items, but understanding how interest works are essential before signing up. The average APR for all credit cards is presently 15.13%.
Assume you have a $500 credit card bill with an APR of 14%. You’ll owe $70 in interest each year. Adding insult to injury, credit card companies often accrue interest daily, and the more debt you have, the higher the rate of interest you will be charged.
Furthermore, you will be charged interest on your original sum and any accumulated interest.
How to Calculate Credit Card Interest
When you borrow money from a friend or your bank, you may need to know the charged interest rates. But when it comes to credit cards, calculating interest can be tricky. Interest is calculated daily, so tracking how much you spend and earn daily is essential. Here’s a guide to calculating credit card interest.
To discover the daily rate on your credit card, divide the annual interest rate (expressed as a decimal) by 365. Suppose your APR is 15%: convert this to decimals, and the equation looks like this: (15/100) / 365 = 0.0004. That results in a tiny 0.0004% daily rate!
To calculate the interest due on your balance, take your average daily balance and multiply it by your daily periodic rate, then multiply the total by the number of days in the billing period.
If arithmetic isn’t your forte, why not simplify the process and use an online credit card interest charge calculator?
Avoiding the Burden of Credit Card Interest: Tips on How to Not Pay Interest on Your Card!
Follow these tips to avoid paying interest on your credit card:
Pay Your Balance Off in Full Every Month
Want to avoid paying credit card interest? Pay your balance in full each month! This way, you’ll pay yourself back for what you’ve spent rather than giving your money away as extra charges. Keeping more of your hard-earned money where it belongs – in your pocket – has never been easier!
Consolidate Debt With a Balance Transfer Credit Card
Suppose you’re facing a mountain of credit card obligations. A balance transfer credit card could be your key to consolidating debt and ditching that pesky credit card interest. It’s a popular strategy to help you save.
If you have a balance of $5,000 and you transfer it to a debt transfer credit card with 0% APR for 18 months, you could save yourself $465 in interest payments! That means you won’t pay a penny in interest on that balance over that time, making it a great way to reduce your debt and overall expenses.
Discover the Benefits of Interest-Free Purchases!
To avoid paying interest on your credit card, familiarize yourself with your interest-free period, typically lasting between 18 and 55 days. However, be aware that this period may differ depending on your card.
For example, if you buy something on March 17 and your interest-free period is 25 days, you will be charged interest on it on April 11.
Please keep track of when your credit card grace period ends so you can make it a goal to pay off your debt before that date. Otherwise, interest will be applied to your outstanding debt at the end of your payment period.
Follow your purchases
If you’re planning a significant purchase shortly, figure out your costs ahead so you can pay off the balance before interest is incurred.
Assume you want to spend $1,000 on a new smartphone. Make monthly payments until the equipment is paid off. Alternatively, you might do the same thing but then make a higher payment after the interest-free period to avoid incurring interest.
At What Point Does Your Credit Card Start Accruing Interest?
As soon as you buy something with your credit card, the clock starts ticking – the day interest kicks in depends on the card provider but typically begins on the transaction date. Take the example of buying something on March 15, with a 25-day interest-free period – come April 9, you’ll start seeing an increase in your balance!
Bottom Line
By following these four simple credit card strategies, you can ensure your funds stay in check and benefit from the perks of having a credit card without additional fees. So there you have it – managing your finances has always been challenging!
