When managed properly, a credit card can add conveniences to many of the tasks we deal with on a daily basis. Quicker stops at the gas station, shopping online, faster checkout at the grocery store and ordering takeout is easier and quicker. However, when your credit cards are not properly maintained, they become more of a burden, mainly due to interest accrued on the amount you have charged on your card that you were not able to pay off before the grace period past. With credit cards typically having a higher interest rate than automobile loans, mortgages and just about any other type of loan, it is easy to see why credit card debt is not a good thing to have. Credit card debt has become such When we use our cards, many people do not realize the amount of the debt is higher if you do not pay it off before the end of the month.
In this post, we are going to cover some methods, information, and tips you can use to help you avoid having to pay interest on your credit cards. We are also going to cover some facts about credit cards that many consumers are not aware of.
What is a grace period?
A grace period is a time frame that extends from the end of your billing cycle and runs to the due date for that billing cycle. As long as you pay the full balance on your card within this period, you will not have to pay any interest. However, cash advances and convenience checks begin racking up interest immediately and are not covered by the grace period. For some companies, balance transfers are also not covered by a grace period.
If you still have a balance on your card after the grace period, don’t be surprised to see trailing or residual interest on your next card statement. Even if you are going to pay the full balance displayed on your statement, this type of interest can build up. Trailing interest can be dealt with by going online and paying your balance before you get the next statement.
Additionally, carrying a balance on your credit cards pretty much does away with the grace period. For most credit companies, you will have to pay the full balance on your card for two months before the company will reinstate the grace period.
Why is it a bad thing to have to pay interest?
Think of the interest on your credit card balance as a convenience fee. While these types of fees can be found easily enough in other types of transactions, it is a little different with a credit card. Your interest rate determines how much of a convenience fee, or interest, you will have to pay. The higher the interest rate, the more you have to pay if your account is not at a zero balance by the time the grace period is over. By decreasing the amount of interest you pay, you are increasing the amount of money saved that can be used for more useful purposes.
Paying your bill earlier, instead of later, is a smart way to reduce the amount of interest you pay. The payment due date stated on your bill is simply the last day you can pay your bill without it being counted as late. Many card issuers calculate the interest on your credit card based on your average daily balance; check the terms and policy of your card on how interest is calculated. Making a payment as early as possible can reduce the amount of interest you will be charged for the month.
In theory, it’s easy to avoid interest
Avoiding interest is simple, right? Just pay off your balance before the grace period, between 21 and 27 days. However, let’s say you have a balance of $2,000 on your credit card. Paying the complete amount by the end of the grace period seems impossible now.
Even if you have a balance that you cannot pay off within the grace period, your efforts should be focused on paying off that balance as quickly as possible. The sooner you do, the more you will save on interest. Additionally, avoid charging such a high amount once your card is paid down. Set a personal credit limit, an amount you know you can pay off within the grace period. This will help to prevent further situations of having to pay interest and possibly any fees.
Sometimes, we cannot afford to pay more than the minimum payment amount. While that is not ideal, it is better than not making a payment at all. However, by understanding and following your budget, you should be able to make additional payments throughout the month when your finances allow you with extra funds. By paying extra, you are reducing the amount you owe and lowering the interest charged on your account.
Be wary of same as cash and interest-free promotions
Promotions such as “same as cash” “no interest if paid in full” and “interest-free” are deferred interest financing promotions. This means that if you do not pay the balance in full by the end of the promotion period, the credit card company can charge you the full accrued interest amount, even if you have very little left to pay. Avoid these offers unless you know for sure that you can pay the full amount before the end of the promotion period.
However, while we are on the topic, utilizing a 0% APR balance transfer is a smart way to save on some interest, so long as you can pay off the transfers before the end of the promotional period, typically six to 12 months. This APR, annual percentage rate, means that the issuing card company will not charge you any interest on balances that you transfer from another card, for that time frame.
Additionally, while it is true that a grace period is necessary if you want to avoid paying interest, not all balances on your credit card have a grace period. For example, if you had a balance on your card at the beginning of the billing cycle, chances are that amount will not have a grace period and any new purchases could be subject to finance charges.
Disputed Charges Interest
If you are not paying a charge on your account that you are disputing, you will not have to worry about the interest, at least for now. According to the Fair Credit Billing Act, you can withhold a payment on a charge that you are disputing without interest, and without having to worry about the grace period on your undisputed charges, while the creditor investigates the matter.
By reading and following the information provided, applying some discipline in your financial management and never charging more of a balance than you can afford to pay off within your card’s grace period, you can save a substantial amount of money by avoiding credit card interest charges. So, before charging your next purchase, ask yourself if you can honestly pay off the card debt during the grace period and if this is the best choice to make. The only one responsible for your personal finances is you. For more helpful information about credit and credit score repair, click here.