How to Avoid Credit Card Interest

The typical credit card charges about 16 percent interest per year on balances, effectively adding $16 to each $100 in expenses that are left on a credit card. Some charge as much as 29 percent if you’re late on a payment and have to pay penalty interest.

Avoiding a credit card balance by paying the bill before the due date each month is the best way to avoid such extra charges—but that’s rare. According to a Federal Reserve payments study, on average, more than three out of every five credit card accounts carry a balance from one month to the next.

Here are some ways to avoid paying credit card interest:

Know the Grace Period
Most people think they only have a month to pay off a credit card bill. A grace period is the time allotted to pay off your credit card bill without incurring any interest. It starts on the last day of your billing cycle and runs through the due date for that cycle. Knowing your credit card’s billing cycle can give you about 3 more weeks to pay off purchases. The key, however, is not forgetting the payment due date and paying the full amount by that date.

For example, a credit card’s billing cycle starts on the twenty-third of one month and ends on the same day a month later, such as May 15 – June 23. The payment due date could be July 17. In this case, the grace period might be June 24 to July 17—about three weeks long. Instead of having a month to pay the bill off, you now have about seven weeks.

Pay as You Buy
If you really want to be diligent about avoiding interest charges, pay off charges on your credit card as soon as you make them.

Credit card companies are happy to accept payments at any time, even multiple times per month. So, every time you make a purchase with your credit card, immediately transfer money from your bank to the credit card company for the same amount. You can often do this through your credit card’s app on your phone, or you can set up weekly payments of a certain amount if you expect to make a certain number of purchases per week.

Pay in Full Each Month
Paying off the credit card bill in full each month is the best way to avoid interest charges. Do whatever it takes to pay it by the due date. Send yourself emails and other alerts, keep track of purchases to ensure you have enough money in your checking account to pay the bill, and stick to a budget.

As a father of two teenagers, it's interesting to see how digitized currency has become (pay by phone, credit cards, in-app purchases - no one seems to carry actual dollars and cents), creating an apparent lack of appreciation for tangible money. It's a struggle and a goal to teach kids the value of a dollar these days, but the more they understand interest (nobody likes "giving" money away), the better their chance of keeping more of what they earn.