Can you imagine spending an additional $16 for every purchase of $100 you make? An expensive dinner at a nice new restaurant, a new handbag, even a parking space at a professional sporting event can cost you $100. Now, add $16 to each one of those expenses – before even considering the tax – and you are really paying $116.
This is essentially what you are doing each time you use your credit card. Today, a typical credit card is going to charge an interest rate of approximately 16 percent a year on your balances. There are some that charge up to 29 percent if you have been late on a payment and must cover the fee and penalty interest.
The best way to avoid paying these additional charges is by not keeping a credit card balance, and paying the bill prior to the due date every month. However, this is a rare occurrence. Three out of every five credit card accounts will have a balance from one month to the next according to information from a payment study done by the Federal Reserve.
Additionally, there is the factor that credit card companies regularly increase the interest rates on their cards. After all, these rates are tied to the federal funds rate, which is something the Federal Reserve is expected to increase again. This happened twice in 2017.
There is good news. Even though credit card interest rates are often high, there are steps you can take to avoid having to pay interest at all. Four ways to do this are found here.
1. Get to Know Your Credit Card’s Grace Period
This is the easiest and most common way to avoid having to pay interest on your credit card purchases. Chances are you already know something about this. However, there is a bit more to know than just when your bill is due.
The majority of people believe they only have a single month to pay their credit card bill; however, when you find out the company’s grace period, you may discover you actually have more time. The grace period is the amount of time the company gives you to pay off your balance without having to pay any interest. It begins at the last day of your billing cycle and goes through the due date of the cycle.
When you know what the billing cycle for your card is, it can provide you with an additional three weeks to pay off the purchases you make. The key to this is to not forget what the actual payment due date is and pay it in full on or before that date.
2. Pay for the Balance as You Make Purchases
If you want to make sure there is no chance you will have to pay credit card interest, then you should pay off any charge you make as soon as it is made. Your credit card companies will be more than happy to accept a payment anytime you want to make one. As a result, there is no penalty for paying off a purchase right away.
3. Switch Your Credit Cards
This is just a one-time option; however, if you are dealing with a high credit card balance and you must pay a huge amount of interest on it, there is an option to move it to another credit card. For example, if you get a credit card offer of zero percent interest for a year, and you can pay the debt within the time period, it will help you save money to do this.
There are quite a few credit cards that offer introductory deals such as this to encourage you to use their services. When you transfer to a card with zero percent interest for a certain amount of time, you can save quite a bit of money. However, there are a few caveats to be aware of:
- If you are unable to pay the balance during the promotional time, you may be charged interest for the whole amount.
- You should not add additional purchases to the new card, as this will increase the amount you have to pay each month.
4. Pay Your Balances in Full Each Month
If you don’t think you can manage the steps above, then all you have to do to avoid credit card interest payments is to pay your credit card balances off every month. You should do whatever you can to make sure the bill is paid by the due date. This includes sending yourself alerts via email and keeping track of the purchases you make to ensure you can pay the bill. You should also create and stick to a budget to prevent you from overspending.
Keep in mind, when you pay your bills on time you can increase your credit rating. Additionally, if you do this consistently, it could help you acquire credit cards with lower interest rates. But, the best benefit of using the tips here is that you will be able to purchase things on your credit card and earn the reward points or other perks without having to use cash.
To find more tips and information about managing and reducing your debt, visit the Ovation Credit Services website, or contact their friendly staff.