How to Avoid/Reduce Credit Card Interest!

With a few tweaks to how you manage your credit card, you can avoid or reduce pricey interest payments.

1. Make multiple credit card payments per month

You don’t have to wait until the end of a billing cycle to pay your credit card. You can make payments any time, which can help lower your overall interest. This is because the interest you’ll pay is actually based on your average daily credit card balance, not the total balance at the end of a billing cycle.

Making a few smaller payments each month helps keep that average daily balance lower, thus lowering your interest.

2. Use a debt repayment method

It can be hard to face your debt head-on, especially if you’re paying off multiple balances at the same time. But there are techniques you can employ to stay organized and motivated. One technique, the debt avalanche, can help.

With the debt avalanche, you begin by making a list of all your debts in order from highest to lowest interest rate. Then, make the minimum payment on every debt, while applying any extra money in your budget to the debt at the top of the list.

Once you pay off that debt, begin tackling the debt with the second-highest interest rate. As you cross each debt off your list, shift your focus and your funds to the new top priority.

3. Consolidate debt with a balance transfer credit card

If you currently have credit card debt, moving it over to a balance transfer credit card will give you a long time to pay down your debt at 0% interest — typically a year or more. This can save you a substantial amount of money.

Let’s say you have $5,000 in credit card debt on a card that charges 15% APR. If you qualify for a balance transfer card offering no interest for 18 months, you’ll save $465 (after accounting for a 3% balance transfer fee) if you pay down your debt within that 18-month time frame.

There are some important things to know about balance transfer credit cards, however:

You typically need good or excellent credit to qualify for these kinds of

cards. That means FICO scores of 690 or higher.

Most of these cards charge a balance transfer fee of around 3% to 5% of the

transferred balance. There are a limited number of no-fee options available.

The interest rate will increase after the 0% APR promotion ends. If you

haven’t fully paid off your balance by then, you’ll begin to owe interest on the

remaining amount.

4. Pay your credit card bill in full every month

If you pay off every bill completely, you won’t carry a balance into the next month, meaning you won’t owe any credit card interest at all. But it can be easy to spend more than you can afford to pay back at once, because using a credit card can feel less tangible than parting with actual cash.

Check in on your credit card activity a few times each month so you can curb your spending if you’re getting close to exceeding your budget.

5. Look for a credit card that charges 0% APR on new purchases. This can give you a year or more to make payments without owing interest. You’ll owe interest on any remaining balance at the end of the 0% APR offer, though.

6. Consider deferred interest financing. Some store cards or medical credit cards offer this type of financing; it can be helpful, but it comes with a catch. If you don’t pay your balance in full by the end of the promotional no-interest period, you’ll owe interest on the entire amount you originally borrowed, not just on the remaining balance.

7. Tap into savings to pay down debt

To face potential emergencies, it’s essential to have savings set aside. Once you’ve stashed away an amount that can help you through a crisis, you can begin putting additional savings to work by paying down debt. Think of it this way: If you’re paying 15% APR on credit card debt and you pay that debt off, it’s like getting a 15% return on your investment.

8. Consider a personal loan

If a balance transfer card isn’t an option, you may qualify for a personal loan that allows you to consolidate your debts and pay them off at a lower interest rate. And since you’ll make equal monthly payments for a set period of time, it can be easier to budget for these debt payments.

Source: NerdWallet.com