How to Avoid Interest on Credit Cards

If you frequently carry a balance on your credit card from month to month, you could get hit with high interest charges that can quickly add up. In fact, according to a LendingTree study, the average interest rate for new credit cards was 24.80% as of June 2024.

The most effective way to avoid interest altogether is to pay your credit card bill in full and on time each month. But if you can’t pay your entire balance, there are ways to reduce the amount of interest you’ll be charged.

How to avoid interest on a credit card

Credit cards generally come with high interest rates that can impact your financial goals. Knowing the four key ways to avoid interest can help you save thousands on interest charges and stay on track with your budget.

1. Pay your balance in full each month

Paying your credit card balance in full each month is the only way to completely avoid credit card interest. Most credit cards offer a grace period between your statement closing date and your due date, typically ranging from 21 to 25 days. If you pay your balance in full by the due date, you won’t owe interest. But if you carry a balance over to the next billing period, you’ll owe interest on the unpaid balance, and you’ll start building interest on new purchases. The total will be added to your account at the end of your billing cycle.

If you pay your balance in full some months and not others, you’ll risk losing your grace period for two months at a time — the month you don’t pay in full and the following month.

2. Use 0% intro APR periods to your advantage

Another way to avoid being charged credit card interest is to apply for a card that offers a 0% intro APR period. A card might offer an intro APR on purchases, balance transfers or both for anywhere from six to 21 months. During this intro period, you’ll still have to make at least the minimum monthly payment due, but interest won’t accrue on any transactions eligible for the 0% APR.

With a card offering a 0% APR intro period, every bit of your payments will go toward the principal of your debt, rather than interest charges plus principal. This makes a 0% APR credit card a powerful tool for paying down debt with a balance transfer or financing a big purchase you can’t cover all at once.

3. Use balance transfers if you have a lot of high-interest debt

If you’re struggling to pay off existing credit card debt, a balance transfer could be a good solution. Balance transfers allow you to move high-interest debt to a card with a lower or 0% APR. This can help you pay off your debt faster while saving you hundreds to thousands of dollars in interest charges. Here are a few things to keep in mind if you decide to do a balance transfer:

• Most balance transfer cards charge a balance transfer fee of around 3% to 5% of the amount you’re transferring.
• If you don’t pay your balance in full within the intro period, you’ll start accruing interest on any remaining debt.
• Balance transfer credit cards often require good or excellent credit.

4. Avoid cash advances

A cash advance is a way to use the available credit on your credit card to take out a loan in the form of cash. However, cash advances have pricey fees and high interest rates — plus, they don’t offer grace periods. This means that interest will start accruing immediately after you withdraw your cash. Getting a credit card with a 0% intro APR or taking out a personal loan are both good alternatives to a cash advance.

How to reduce credit card interest

While avoiding credit card interest entirely isn’t always realistic, there are ways to ensure that you pay the least amount of interest possible:

1. Make several payments throughout the month

If you can’t pay your balance in full each month, you should make several small payments throughout the month. That’s because the amount of interest you’ll be charged is based on your average daily credit card balance (and not your total balance at the end of your billing cycle). So reducing your balance throughout the month will lower your average daily balance, and therefore lower the amount of interest you’ll owe..

2. Improve your credit score

Getting the lowest APR when you apply for a card comes down to your credit score. The higher your credit score is, the better your chance is of getting a lower APR. Your credit score alone can save you a substantial amount each year on interest. There are a few easy ways you can build your credit score, including paying your bills on time each month and keeping your credit utilization ratio low.

3. Ask your credit card issuer for a lower APR

If you have a credit card with a high interest rate, you can call your credit card issuer and ask if they can lower it. While it’s not guaranteed that they will, it never hurts to ask: According to a LendingTree survey, more than three in every four cardholders who asked for a lower interest rate on one of their credit cards got one. If you have a long history with the bank and make on-time payments, you’re more likely to get a lower rate if you ask.

Why it’s important to avoid credit card interest

Carrying a balance occasionally might not seem like a big deal, but interest charges can add up. For example, if you pay off a $1,000 balance over four months on a credit card with a 20% APR, you’ll pay about $42 in interest.

Interest charges can also wipe out any value you’ll get from your credit card rewards program. If you earned 2% back on $1,000 spent, that would be $20 in cash back. But after paying $42 in interest, you’re actually facing a net loss of $22 rather than earning anything. It’s best to treat your credit card like cash and only spend what you can afford to immediately pay off by the statement due date.