How to pay no interest on a credit card

How to pay no interest on a credit card

Your credit card issuer offers the convenience of paying your credit card balance over a period of time. However, carrying a balance on your credit card from month to month usually means you’ll have to pay interest, in the form of a finance charge. If you want to keep your credit card free, or at least lower the expense of having a credit card, that means avoiding credit card interest.

What's Wrong With Paying Interest?

When you pay interest on a credit card balance, you end up paying more for your purchases than you borrowed in the first place.

The higher your interest rate and the longer it takes you to pay off your balance, the more interest you will pay overall. Some credit cards charge interest daily, so a credit card that states an APR of 15% will actually end up costing you more than that if you do not pay off your credit card balance each month. For some people, that’s lunch money for a week, a tank of gas, a month of cellular service, a college textbook, or a month’s worth of diapers. You don’t realize how much you’re actually spending on interest because it’s spread over a period of time and lumped in with your credit card payment, but that doesn’t make it any less significant.

It's simple mathematics—decrease the amount of interest you pay and you'll increase the amount of money you have available to spend on necessary expenses.

In Theory, Avoiding Interest Is Simple

Generally, you can avoid credit card interest by paying your balance in full every month before the end of the grace period. Grace periods are at least 21 days. Credit card issuers must mail your billing statement earlier than the beginning of your grace period so you have time to take advantage of their grace period.

If you're like many people today and you simply can't possibly pay off a $1,000 balance at one time, then pay it off as quickly as possible—and try not to put any more debt on that card until you've paid off your balance. If you're paying your balance incrementally, you won't completely avoid interest, but you'll decrease the amount you pay.

Once you get into the habit of paying the least amount of interest as you can, be proactive to meet your no-interest goal. That means only charging as much as you can afford to pay off every month. Don't charge $1,000 on your credit card if you can only afford to pay off $300. Instead, give yourself a maximum purchase limit of $300. Use your budget to re-evaluate what you can afford to charge each month.

When the Grace Period Doesn't Apply

A grace period is necessary to avoid paying interest, but not all credit card balances have a grace period. For instance, you may not have a grace period if you already had a balance on your credit card at the beginning of the billing cycle. In other words, if you didn’t pay off your balance last month, your new purchases may also be subject to a finance charge.

Some types of transactions—namely cash advances and sometimes balance transfers—don’t allow a grace period. Interest starts accruing immediately on those kinds of transactions. The only way to avoid paying interest on a transaction without a grace period is to pay off the balance the same day you make the transaction—and that’s usually not feasible.

Read the Fine Print

While it’s rare, some credit cards do not provide a grace period at all. Do your homework and learn whether a credit card has a grace period by reading the credit card disclosure. Then, avoid the credit cards without grace periods altogether.  

Interest-Free and Other Kinds of Promotions

Be careful with "interest-free," "same-as-cash," and "no-interest-if-paid-in-full" promotions. These are deferred interest financing plans that require you to pay the balance in full by the end of the promotional period—and often, that interest rate is exorbitantly high.

Frequently Asked Questions (FAQs)

What happens if a credit card balance isn't paid off before the end of an interest-free period?

Different cards may treat lingering balances differently after a promotional period ends. In a worst-case scenario, the card will charge deferred interest. This adds all the interest costs that would've accrued if the balance hadn't had a promotional period at all. Other cards may simply treat the lingering balance as a new balance that's subject to normal interest charges on the next statement.

What is a good credit card interest rate?

The average credit card interest rate is about 20%, so any rate below that could be considered a good rate.

How can you get a lower credit card interest rate?

Your credit card terms are negotiable, and you may be able to get a lower interest rate simply by asking for one. Your likelihood of getting a lower rate, a larger credit limit, or any other benefit will depend on how well you have handled your existing credit. Someone who keeps their credit usage to a minimum and never misses a payment is more likely to be successful in negotiations.

How to pay no interest on a credit card

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Credit card debt takes a toll. Beyond the stress of having it hanging over you, the interest can cost hundreds or thousands of dollars per year. According to a NerdWallet study , the average U.S. household with revolving credit card debt — balances carried from one month to the next — will pay more than $1,000 in interest charges this year.

The only way to eliminate credit card interest entirely is to pay your balance in full every month. But there are also ways to reduce your interest costs significantly as you pay down debt .

1. Pay off your cards in order of their interest rates

If you have credit card debt on multiple cards, some personal finance experts recommend paying them off according to the size of the balance, starting with the smallest. The idea is that the quick wins will give you momentum and motivation. However, it will save you the most money to pay your cards off in order of their interest rates, starting with the highest-rate card and moving to the lowest.

2. Make multiple payments each month

Credit card issuers assess interest based on your average daily balance, not your balance at the end of the month. Paying more than once per month — say, every two weeks — will reduce that average balance and, with it, your interest charges.

Say you have a credit card balance of $4,000 and will be able to pay $2,000 this month. If you wait to pay until the end of the billing cycle (when you receive your bill) to pay, your average daily balance will be $4,000. If you pay in the middle of the cycle, your average daily balance will be $3,000 — $4,000 for 15 days and $2,000 for 15 days.

The earlier you pay and the more you pay, the lower your average daily balance will be. Consider making a payment each time you get paid and any time you receive a windfall, such as a cash gift or a tax refund.

3. Avoid putting medical expenses on a credit card

According to our study, up to 27 million Americans could be putting medical expenses on credit cards. While unexpected — or even expected — medical bills might not fit into your budget, putting them on a credit card is rarely the answer. Depending on the amount you owe, doing so could cost you hundreds of dollars in interest — and you may be able to pay the balance off while avoiding interest altogether. Doctors and hospitals will often help you set up an interest-free payment plan with reasonable monthly payments. Call your doctor or hospital’s billing department and ask about your options.

4. Consolidate your debt with a 0% balance transfer card

If you owe more than you can pay off in the next few months, signing up for a balance transfer card may be a wise move. When you transfer a balance, you move your debt from one card to another, usually one with a 0% interest rate for 12 to 18 months.

Most cards will charge around 3% of your balance to move your debt, although a few cards have no such fee or waive it for a short time. Getting approved typically requires good or excellent credit. And you can’t transfer debt among cards from the same issuer — from one Chase card to another Chase card, for example.

If you use a balance transfer, make a plan to pay off your credit card debt before the 0% introductory rate expires, so you can avoid paying any interest.

5. Get a low-interest credit card for future spending

Ideally, you’d spend within your means and pay off your credit card every month. But that’s not always possible. If you consistently carry a balance, consider applying for a low-interest credit card for future spending.

The right low-interest credit card for you depends on your situation. If you expect to carry a balance only in the short term, look for a card with a 0% introductory rate and pay it off in full before that rate expires. If you think you’ll be carrying balances beyond 12 to 18 months, get a card with a low ongoing rate.

You'll likely have your pick of low-interest or 0% cards if you have a good credit score. That starts with paying your bill on time every month — even if you can pay only the minimum — and keeping your balance low relative to your credit limit.

About the author: Erin is a credit cards expert and studies writer at NerdWallet. Her work has been featured by USA Today, U.S. News and MarketWatch. Read more

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How to pay no interest on a credit card

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How to pay no interest on a credit card

On any credit card, issued by any issuer every month, it’s mandatory to pay only 5 per cent of the credit card outstanding amount.

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It is never a good idea to spend carelessly using your credit card as it is one of the easiest ways of landing in a debt trap. Getting out of this trap can be time-consuming and expensive. You will have to pay interest rates in the range of 36-48 percent on the outstanding balance of a credit card (after rolling-over).

Here are six ways you can use your credit card wisely and lower the interest burden.

1. Pay the credit card outstanding amount on the due date
On any credit card, issued by any issuer like Visa or Mastercard, every month, it's mandatory to pay only 5 per cent of the credit card outstanding amount. The balance can be rolled over to the next month. This is something you should completely avoid doing as this is the fastest way of landing up in that debt trap. If you do not even make the minimum amount of 5 percent by the due date, a late payment fee is charged along with interest charges and taxes.

What you should do: Try making full payment on the due date so that interest cost is nil. In order to keep the interest cost on credit cards at bay, pay the outstanding amount in full by the due date.

2. No interest-free period on new purchases
Rolling over the outstanding balance to the next billing cycle will incur monthly interest at the rate of 3-4 per cent. If you keep rolling over and simultaneously make new purchases each month, the interest portion may balloon and soon you would fall into a debt trap.

Typically, there is an interest-free period on credit card purchases, which can even go up to 45-plus days. To avail this benefit, the outstanding amount has to be nil. So, if you roll over certain amount to next month's billing, there's no interest-free period on the new purchases.

What you should do: Unless, your outstanding amount is cleared, avoid making fresh purchases on the card to keep the interest cost lower.

3. Go for balance transfer
If you are hard-pressed for funds, you might not be able to pay the bill amount in full. Revolving credit to the next month incurs huge interest charge of about 3 to 4 percent per month.

What you should do: In such a scenario, one may go for 'balance transfer' (BT) facility, which is possible only if one holds more than one card. The card limit up to the amount availed as BT, however, gets blocked once the facility is used. Using the facility, one may transfer the outstanding amount to another credit card at a reduced interest rate in the range of 1 percent to 1.77 percent a month. "Balance transfer is the process of transferring your debt from one credit card to another. Objective is to save on interest payments each month at low interest credit card", says Manav Jeet, MD & CEO, Rubique Technologies.

There will, however, be processing charges which is generally 1 percent of the BT amount. At times, card issuers offer zero-interest BT facility. "Zero interest offers are temporary and usually last between 3 to 12 months. It is important to repay the balance within the time frame", says Jeet. If you are thinking transferring the balances across various credit cards, Jeet has a word of caution for you: "It is important to consider that frequent credit card balance transfer or higher outstanding balance on card will impact your credit score."

4. Convert to EMI
There could be some high-ticket purchases on your card. If paying it off entirely is a concern, you can convert them into EMIs as they come at a lower interest rate than what would have paid. After conversion, the interest hit could be about 14-24 per cent lower than the one on the card.

What you should do: There can be two types of EMI conversion facilities. "The first is the merchant EMIs that a merchant offers when you buy a particular product using your credit card. Alternatively, your credit card issuer may offer you an EMI option on certain high-ticket purchases you have made using your credit card. These are popularly known as EMIs on call," says says Navin Chandani, CBDO, BankBazaar.

Remember, rewards points will not accrue on EMI payments and further keep an eye of the processing charge involved. "While the merchant EMIs may not have associated charges, the card issuers usually have charges associated with transferring a credit card balance to an EMI on call," says Chandani.

5. Deposit cash withdrawals back at the earliest
If you have to withdraw cash from ATMs using your credit card, make sure to deposit the cash back as early as possible as these withdrawals do not come with an interest-free period. There could be a one-time fee plus interest charges that start from day one till you repay the amount.

What you should do: Putting back the amount early will help you to avoid paying a higher rate of interest.

6. Avoid using credit cards abroad
Using a credit card abroad for foreign currency transactions is fine but it may be expensive. If one uses a credit card abroad, there will be conversion charges, and if used at an ATM, an additional fee is levied. The conversion charges can be anywhere between 3 percent and 5 percent.

What you should do: Alternatively, you can carry a forex card while travelling abroad for better pricing and keeping the overall cost at bay.

How to pay no interest on a credit card

Credit card interest is expensive. Here are five ways to reduce the interest you pay on your card and keep more money in your pocket.

Average credit card interest rates in the U.S. are over 16%. If you carry a balance, you could pay a fortune in interest each month. And you may be destined to make those payments for years.

Yet The Ascent's study found 60% of Americans carry credit card debt. That's millions of people contributing to the hundreds of billions paid to credit card companies every year. But this doesn't have to be your fate.

There are lots of ways you can reduce the credit card interest you pay. That means more money in your pocket and less going to your credit card company. Here are five good options:

1. Pay off your card early

The best way to pay less credit card interest is to pay off your balance in full every month. If you can pay off the balance by the due date, you won't owe any interest.

Are you already carrying a credit card balance? Then the ship has sailed on avoiding interest altogether. But you could still save a fortune by making more than the minimum payment.

Say, for example, that you owe $5,000 on a credit card at 16% interest. The minimum payment is the greater of $25 or 2.5% of what you owe. If you pay the minimum, you'll take 195 months to pay off your balance (assuming you don't charge any more on the card). You'll pay a total of $5,010.05 in interest charges during 16.25 years of debt repayment.

What if you commit to paying $300 on your credit card each month instead of the minimum? You'll take just 19 months to pay off what you owe and will incur only $692 in interest.

The bigger the payments you can make and the earlier you pay off your debt, the more you'll save.

2. Ask your creditor to reduce your interest rate

Many people assume the interest rate they're paying on their credit card is set in stone. But this isn't necessarily the case. In fact, you can often negotiate with your creditors and ask them to lower your interest rate.

Try calling your customer service number and requesting a lower interest rate. Be polite, and be ready to hear a "no." But call again if they reject you the first time. You may get a more helpful customer service rep in the future.

It can also help to research what other cards charge and come prepared with details on competitor offers. Card issuers don't want to lose your business if you've been a good customer and routinely pay on time. They may be willing to match a competitor's rate if doing so will convince you to stay a customer.

3. Use balance transfer cards

Are you carrying a balance on your credit card? You don't have to leave the debt with that card issuer as you pay it off. Instead, you could opt to use a balance transfer card.

Balance transfer cards offer low promotional rates for a limited time period on transferred balances. These rates are often 0%. You may have to fulfill certain requirements, such as transferring the balance within 60 days of opening your account.

Some balance transfer cards charge you a fee for transferring a balance. But by jumping through a few hoops, you could potentially save a lot of money.

If you score 0% interest on a $5,000 balance for 15 months, all of your payments go towards your principal balance. It's much easier to repay what you owe without making interest payments. Ideally, you should pay your transferred balance in full by the time the promotional rate expires.

There's one caveat: If you'll still be stuck with a balance at the end of the promotional period, make sure you know what interest rate you'll pay on the outstanding amount. If it's much higher than your current rate and you'll still owe a lot, the transfer may not be worth it.

4. Pay off your cards with a personal loan

Another way to reduce the interest rate and total cost of credit card debt is to take out a personal loan and pay off what you owe. Many personal loans have significantly lower interest rates than credit cards, and personal loan funds can be used to consolidate and refinance credit card debt. This means you could pay off one or more existing credit cards. That lowers your rate and reduces the number of payments you make each month.

Consolidation could save you a substantial amount in interest and give you a fixed timeline to repay your debt. You'll know exactly when you'll become free of your debt burden.

Say, for example, you have two credit cards:

  • One with a $5,000 balance at 15% interest with monthly payments of $125.
  • One with a $3,000 balance at 16% interest with monthly payments of $75.

If you take out a 36-month personal loan with 9.49% APR, your new monthly payment will be $256.23. You've reduced your payment time by 1.95 years with your consolidation loan and you'll save $2,208.86 in total interest.

Consolidating with a personal loan can create substantial savings and allow you to pay much less interest. Just make sure you can qualify for a personal loan large enough to consolidate your debt. Shop around among different lenders and comparing rates and terms to maximize your savings.

5. Stick to 0% APR cards for purchases

If you have to carry a balance on a credit card, look for a card that offers 0% APR on purchases as an introductory offer. If you get a card that won't charge you interest for 12 or 15 months after you become a cardholder, you can go for a long time without incurring interest charges.

Ideally, you'll be able to pay off those purchases before the promotional rate ends and won't have to pay interest at all.

Of course, it's always best to not carry a balance. Only use this strategy if you have to.

Start looking for ways to lower your credit card interest

There are lots of options available to help you pay less in credit card interest:

  • Paying off your card early.
  • Asking your card issuer to lower your rate.
  • Transferring your debt to a balance transfer card.
  • Use a personal loan to consolidate and refinance credit card debt.
  • Sign up for a card with a 0% APR promotional period.

You just need to figure out which choice makes sense for you. If you owe a balance, act quickly to lower your interest costs so you don't waste a fortune paying interest.

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About the Author

Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

Learn how interest is calculated, how it’s determined, when it’s charged and how to pay less of it

October 14, 2021 | 1 min video

A credit card can be a great way to make purchases and earn rewards. And if you pay off your credit card’s last statement balance in full every month, you may not have to worry about extra charges—like interest.

But things can happen, and you may have to carry a balance and accrue interest on that balance. So how exactly does credit card interest work? This article will help you answer that question and more—including ways to pay less interest.

What Is Credit Card Interest?

As the Consumer Financial Protection Bureau (CFPB) explains, interest is the cost of borrowing money from a lender. Interest is typically shown as an annual percentage rate, or APR. For credit cards, the APR and interest rate are usually the same.

When you make a purchase using your credit card, your lender pays the merchant upfront for you. And you eventually pay back your lender by paying your bill. When you pay your bill, you pay back the charge and any interest that has accrued and been applied to the account.

When Is Credit Card Interest Charged?

If you don’t pay your balance in full, then the unpaid portion of your balance is carried over from one billing cycle to the next. This is known as a revolving balance. And revolving balances typically accrue interest. You can reduce the amount of interest you’re charged by paying down more of your revolving balance and by paying it down quickly and on time.

Different Types of Credit Card Interest

Keep in mind: Interest isn’t only charged on purchases. And your standard purchase APR isn’t the only interest rate associated with your credit card.

For example, a new credit card may come with a lower, limited-time APR that can apply to purchases or specific types of transactions. Interest is also typically charged on transactions like cash advances and balance transfers. And a penalty APR might apply if you make late credit card payments or miss payments altogether.

Keep in mind that your APRs for cash advances, balance transfers and penalties may be higher than your credit card’s purchase APR. Cash advances and balance transfers may also come with other fees as well. And cash advances generally start to accrue interest immediately.

Where Can I Find My Credit Card’s Interest Rates?

Your credit card’s interest rates can be found in your account opening disclosures and on your monthly credit card statement.

What Determines a Credit Card’s Interest Rate?

As the CFPB explains, “The credit card company may decide which interest rate to charge you based on your application and your credit history.” Generally, the higher your credit score, the lower your interest rate might be.

The interest rate, or APR, can either be variable or non-variable. A variable APR is often based on the prime rate—an index that most lenders use to set their own interest rates. And a variable APR could change when the prime rate changes. A non-variable APR typically stays the same, but it can change under certain circumstances. For example, your non-variable APR could increase if you make late credit card payments or miss payments, depending on your card issuer’s policy and your card terms.

A credit card may offer an introductory or promotional APR on purchases and balance transfers. After the introductory or promotional period ends, the rate will return to the standard APR disclosed in the card’s terms.

How Is Credit Card Interest Calculated?

Banks use a formula to determine how much interest you’ll pay on any outstanding balances. The interest can be calculated daily or monthly, depending on the card.

Some credit card issuers calculate credit card interest based on your average daily balance. If that’s the case with your card, in general, your issuer might track your balance day by day, adding charges and subtracting payments as they’re made. All those daily balances are added together at the end of the billing cycle. Then, the total is divided by the number of days in the billing cycle to calculate your average daily balance.

The full explanation of how your issuer calculates interest will be disclosed in your card’s terms and conditions.

Ways to Pay Less in Credit Card Interest

There are a few ways you can pay less in interest charges. For example, if you have a good credit score you may qualify for a card with a lower interest rate. And a credit card with a low interest rate can help you keep interest costs down if you carry a balance.

Here are a few other ways to pay less in interest:

  • Pay your balance in full every billing cycle. Paying your balance in full every billing cycle can help you pay less in interest than if you carry over your balance month after month. But if you can’t pay your balance in full, the CFPB recommends paying as much as possible—and making at least the minimum credit card payment. As the CFPB explains, “The higher the balance you carry from month to month, the more interest you pay.”
  • Pay as soon as possible. You don’t have to wait until the end of the billing cycle to make a payment. Paying earlier or more than once a month may help reduce interest charges if you’re carrying a balance and not paying your full balance off each month.
  • Use a credit card with a 0% introductory rate. If you need to apply for credit, you could consider applying for a credit card with a 0% introductory APR on purchases. Just make sure you know when the promotional period ends. At that point, the APR will increase from 0% to the standard APR disclosed in the card’s terms.

It doesn’t take a math formula to see that credit card interest charges can become expensive.

Knowing how credit card interest works can help you understand how much it might cost you. But you can reduce the amount you pay in interest by paying your balance in full each and every billing cycle.

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Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.

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Credit card companies make money in two ways. One is the fees they charge retailers, restaurants, and other sellers of goods and services when you use your card to buy something. The other is the interest and fees they charge you. Here is how credit card interest works—and how you can pay less of it.

Key Takeaways

  • Credit card companies charge you interest unless you pay your balance in full each month.
  • The interest on most credit cards is variable and will change from time to time.
  • Some cards have multiple interest rates, such as one for purchases and another for cash advances.
  • Your credit score can affect the interest rate you'll pay as well as which cards you may qualify to use.

What Is Credit Card Interest?

Interest is what credit card companies charge you for the privilege of borrowing money. It is typically expressed as an annual percentage rate or APR.

Most credit cards have variable APRs that will fluctuate with a particular benchmark, such as the prime rate. So, for example, if the prime rate is 4%, and your credit card charges the prime rate plus 12%, your APR will be 16%. Recently, the average APR of credit cards tracked in Investopedia’s database was 19.62%.

With most credit cards, you are only charged interest if you don't pay your bill in full each month. In that case, the credit card company charges interest on your unpaid balance and adds that charge to your balance. So if you don't pay off your balance in full the following month, you'll end up paying interest on your interest. This is how credit card balances can grow rapidly and sometimes get out of hand.

To further complicate matters, some credit cards charge multiple interest rates. For example, they may charge one rate on purchases, but another (usually higher) one on cash advances.

Understanding Credit Card Interest

How Credit Card Interest Works

If you carry a balance on your credit card, the card company will multiply it each day by a daily interest rate and add that to what you owe. The daily rate is your annual interest rate (the APR) divided by 365.

For example, if your card has an APR of 16%, the daily rate would be 0.044%. If you had an outstanding balance of $500 on Day One, you would incur $0.22 in interest that day, for a total of $500.22 on Day Two. That process continues until the end of the month. If you had a balance of $500 at the beginning of the month and added no other charges, you would end up with a balance of $506.60, including interest.

What Is a Good Interest Rate for a Credit Card?

Credit card interest rates vary widely, which is one reason to shop around if you’re looking for a new card. Typically, the better your credit, as represented by your credit score, the better the rate you’ll be eligible to receive. That’s because the credit card company will consider you to be less of a risk than someone with a lower score.

In shopping for a credit card, knowing your credit score and the range into which it falls (such as excellent, good, fair, poor) can help you determine which cards and what kinds of interest rates you might be eligible for before you apply. You can obtain your credit score for free at a number of websites and also from some credit card companies. Note that your credit reports, which you can also obtain free of charge at AnnualCreditReport.com, do not include your credit score.

Repaying Credit Card Debt: Two Interest Scenarios

Let’s say John and Jane both have $2,000 balances on their credit cards, which require a minimum monthly payment of 3%, or $10, whichever is higher. Both are strapped for cash, but Jane manages to pay an extra $10 on top of her minimum monthly payment. John pays only the minimum.

Each month John and Jane are charged interest on their cards’ outstanding balances at an APR of 20%. When John and Jane make payments, part of their payment goes to paying interest and part toward principal (their balance).

Here is a breakdown of the numbers for the first month of John’s credit card debt. (For the sake of simplicity, we're showing the interest calculated on a monthly, rather than daily, basis.)

  • Principal: $2,000
  • Payment: $60 (3% of balance)
  • Interest: ($2,000 x 20%)/12 months = $33.33
  • Principal Repayment: $60 – $33.33 = $26.67
  • Remaining Balance: $1,973.33 ($2,000 – $26.67)

These calculations are carried out every month until the credit card debt is paid off.

If John continues paying only the minimum, he will spend a total of $4,241 over 15 years to pay off his $2,000 in credit card debt. The interest alone will have cost him $2,241.

Because Jane is contributing an extra $10 a month, she'll pay a total of $3,276 over seven and a half years to cover her original $2,000 in credit card debt. Her interest charges will total $1,276.

The extra $10 a month saves Jane almost $1,000, compared with John, and cuts her repayment period by more than seven years.

The lesson here is that every little bit counts. Paying twice your minimum or more can drastically cut down the time it takes to pay off the balance, which leads to lower interest charges in total.

Of course, while it's good to pay more than your minimum, it’s better not to carry a balance at all.

Why Pay Your Balance in Full?

As an investor, you would be thrilled to get a yearly return of 17% to 20% on a stock portfolio, right? In fact, if you were able to sustain that kind of return over the long term, you should probably be running your own hedge fund.

Paying off a credit card balance is much like getting a guaranteed rate of return on your investment. If your credit card charges 20% interest per year and you pay off the balance, you are guaranteed to save yourself 20%, which, in a way, is the equivalent of making a 20% return.

So, when you have some cash to spare, it is almost always better to use it to reduce your credit card debt than to invest it. If you can pay off your balance and stop paying credit card interest altogether, you'll find you have more money to invest in the future.

One interim strategy to consider, if you’re eligible, is transferring your current credit card balances to a balance transfer credit card with a lower interest rate. Many of these cards have promotional periods of six to 18 months over which they charge 0% interest on your balance, which can stop the clock on further interest charges and allow you to pay your balance down faster. Just watch out for any balance transfer fees, which can add 3% to 5% to your existing balance.

Here are six ways you can use your credit card wisely and lower the interest burden

How to pay no interest on a credit card

On any credit card, issued by any issuer every month, it’s mandatory to pay only 5 per cent of the credit card outstanding amount.

It is never a good idea to spend carelessly using your credit card as it is one of the easiest ways of landing in a debt trap. Getting out of this trap can be time-consuming and expensive. You will have to pay interest rates in the range of 36-48 percent on the outstanding balance of a credit card (after rolling-over).

Here are six ways you can use your credit card wisely and lower the interest burden.

1. Pay the credit card outstanding amount on the due date
On any credit card, issued by any issuer like Visa or Mastercard, every month, it’s mandatory to pay only 5 per cent of the credit card outstanding amount. The balance can be rolled over to the next month. This is something you should completely avoid doing as this is the fastest way of landing up in that debt trap. If you do not even make the minimum amount of 5 percent by the due date, a late payment fee is charged along with interest charges and taxes.

What you should do: Try making full payment on the due date so that interest cost is nil. In order to keep the interest cost on credit cards at bay, pay the outstanding amount in full by the due date.

2. No interest-free period on new purchases
Rolling over the outstanding balance to the next billing cycle will incur monthly interest at the rate of 3-4 per cent. If you keep rolling over and simultaneously make new purchases each month, the interest portion may balloon and soon you would fall into a debt trap.

Typically, there is an interest-free period on credit card purchases, which can even go up to 45-plus days. To avail this benefit, the outstanding amount has to be nil. So, if you roll over certain amount to next month’s billing, there’s no interest-free period on the new purchases.

What you should do: Unless, your outstanding amount is cleared, avoid making fresh purchases on the card to keep the interest cost lower.

3. Go for balance transfer
If you are hard-pressed for funds, you might not be able to pay the bill amount in full. Revolving credit to the next month incurs huge interest charge of about 3 to 4 percent per month.

What you should do: In such a scenario, one may go for ‘balance transfer’ (BT) facility, which is possible only if one holds more than one card. The card limit up to the amount availed as BT, however, gets blocked once the facility is used. Using the facility, one may transfer the outstanding amount to another credit card at a reduced interest rate in the range of 1 percent to 1.77 percent a month. “Balance transfer is the process of transferring your debt from one credit card to another. Objective is to save on interest payments each month at low interest credit card”, says Manav Jeet, MD & CEO, Rubique Technologies.

There will, however, be processing charges which is generally 1 percent of the BT amount. At times, card issuers offer zero-interest BT facility. “Zero interest offers are temporary and usually last between 3 to 12 months. It is important to repay the balance within the time frame”, says Jeet. If you are thinking transferring the balances across various credit cards, Jeet has a word of caution for you: “It is important to consider that frequent credit card balance transfer or higher outstanding balance on card will impact your credit score.”

4. Convert to EMI
There could be some high-ticket purchases on your card. If paying it off entirely is a concern, you can convert them into EMIs as they come at a lower interest rate than what would have paid. After conversion, the interest hit could be about 14-24 per cent lower than the one on the card.

What you should do: There can be two types of EMI conversion facilities. “The first is the merchant EMIs that a merchant offers when you buy a particular product using your credit card. Alternatively, your credit card issuer may offer you an EMI option on certain high-ticket purchases you have made using your credit card. These are popularly known as EMIs on call,” says says Navin Chandani, CBDO, BankBazaar.

Remember, rewards points will not accrue on EMI payments and further keep an eye of the processing charge involved. “While the merchant EMIs may not have associated charges, the card issuers usually have charges associated with transferring a credit card balance to an EMI on call,” says Chandani.

5. Deposit cash withdrawals back at the earliest
If you have to withdraw cash from ATMs using your credit card, make sure to deposit the cash back as early as possible as these withdrawals do not come with an interest-free period. There could be a one-time fee plus interest charges that start from day one till you repay the amount.

What you should do: Putting back the amount early will help you to avoid paying a higher rate of interest.

6. Avoid using credit cards abroad
Using a credit card abroad for foreign currency transactions is fine but it may be expensive. If one uses a credit card abroad, there will be conversion charges, and if used at an ATM, an additional fee is levied. The conversion charges can be anywhere between 3 percent and 5 percent.

What you should do: Alternatively, you can carry a forex card while travelling abroad for better pricing and keeping the overall cost at bay.

Knowing how your credit card interest is calculated and when it’s charged can help you manage your repayments and avoid paying unnecessary interest.

Credit card interest is a charge for borrowing money from a financial institution with your credit card. How much interest you’ll pay depends on the type of card you have, the transactions you make, and when you make repayments.

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Calculating credit card interest

How your credit card interest is calculated may vary depending on who you bank with. At CommBank, we calculate interest from the day each purchase is made up until it’s repaid in full. This applies to all purchases unless you’re eligible for an interest-free period. (We explain interest-free periods below.)

To work out your interest charges, we calculate interest separately for:

  • Purchases

For each of these categories, we follow these steps:

  1. Average the balances over the statement period
  2. Multiply the average balance by the applicable daily interest rate (annual rate divided by 365)
  3. Multiply the above amount by the number of days in the statement period

If you have a balance transfer or instalment plan, the interest rate we use will be shown when you apply. Applicable interest charges and interest rates can also be found on your monthly credit card statement.

Interest-free periods on purchases

Most CommBank credit cards come with an interest-free period on purchases, meaning you won’t be charged any interest on purchases, so long as you pay your closing balance in full by the due date every month.

How to pay no interest on a credit card

When interest is charged

If you don’t pay your closing balance in full by the due date – that is, if you only pay the minimum amount shown on your statement, make a partial payment, or don’t pay on time – you will be charged interest and lose your interest-free period.

If you lose your interest-free period, we’ll charge interest on the unpaid balance from the day after the payment due date shown on your statement, until you repay in full. Losing your interest-free period means that any new purchases you make will incur interest from the day you make them until they’re paid off.

How to pay no interest on a credit card

Some transactions don’t have interest-free periods

Some types of transactions have no interest-free period, which means they accrue interest from the day they are made until they are repaid in full. With CommBank credit cards, this includes:

    transactions such as ATM withdrawals, money transfers and transactions considered equivalent to cash (like traveller’s cheques) (you don’t need to pay this off to get an interest-free period on other purchases)

Similarly, some credit cards have no interest-free periods (such as CommBank Business Low Rate credit cards). All transactions on these cards accrue interest from the day you make the transaction until they’re paid off.

How to stop paying interest

Interest is charged to your account on the last day of your statement period.

The easiest way to avoid paying interest is to always pay your statement’s closing balance on time, and not make any cash advances.

If you’ve been paying interest on purchases, you can regain your interest-free period by:

  • Paying your account balance in full to get interest-free on all purchases from that day. 1 This is everything you owe up until today, including any purchases you’ve made since your last statement. 2
  • Paying your closing balance in full by the due date shown on your statement to get interest-free on new purchases in your next statement period. This is the amount you owe from your last statement period.

How to pay no interest on a credit card

Remember, you don’t need to wait until the due date to pay off your credit card. The sooner you pay off everything you owe, the less interest you’ll need to pay. When you pay your account balance in full, it’s important to remember that there may still be interest owing. Your next statement will include any interest accrued from the start of your statement period up until the time we receive the payment.

Reduce the interest you pay

Here are a few other tips to help you minimise interest:

  • Pay off as much as you can every month, as soon as you can — don’t wait for the due date
  • Set up automatic payments to pay off your credit card with AutoPay
  • Only use your credit card to pay for things you can afford to pay back
  • Consider transferring part or all of your balance into a SurePay ® instalment plan to pay off your debt in monthly repayments
  • Set a spending cap so you know how much you have available to spend each month, without permanently decreasing your limit
  • Block ATM cash advances using features like Lock, Block, Limit ® or apply a gambling cash block on all cash transactions

On top of the payable interest, you may also be charged a late payment fee, and your credit score may be impacted if you don’t pay at least the minimum amount shown on your statement by the due date.

Try our credit card repayment calculator

Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.

1 Please note: sometimes we don’t receive payments in time to process them the same day as you make them, for instance when you transfer from another bank, which may affect this.

2 Your account balance does not include any pending transactions.

* The example is for illustrative purposes only and assumes you’ve paid your closing balance in full by the due date in previous statement periods to be eligible for an interest-free period on purchases, and you can continue to do so to maintain your interest-free period.

# The example is for illustrative purposes only and assumes you’ve paid your closing balance in full by the due date in your previous statement period to be eligible for an interest-free period on purchases.

^ The example is for illustrative purposes only and assumes you have not paid your closing balance in full by the due date in your previous statement period

Every credit card holder should understand how interest is charged – that way, you can make informed decisions about how you use your card.

The cost of credit.

Credit cards provide a convenient way to spend, online and in stores. If you are using a credit card, it’s important to understand how interest is calculated and charged on your card so you can make smart decisions about your money.

Purchases vs cash advances

When you use your credit card, interest is charged differently on purchases, cash advances and balance transfers.

Purchases

Interest on your purchases is not charged immediately. If you pay your closing balance in full by the due date, there is no interest to pay on purchases. Interest accumulates daily and will be charged on your next statement if you haven’t paid your closing balance in full by the due date. The interest will continue to add up until the total balance is paid.

Cash advances including quasi-cash

If you withdraw cash on your credit card or use your credit card to purchase goods or services that are similar or easily converted to cash (otherwise known as “quasi-cash” transactions), interest is charged from the date of the transaction until the date you pay the transaction off in full. The interest rate on cash advances is usually higher than the rate on purchases.

Examples of quasi-cash transactions

The most common types of quasi-cash transactions include:

  • making gambling transactions or topping up online gambling accounts;
  • sending money to another person, for example money transfer or telegraphic transfer;
  • purchasing foreign currency or travellers cheques;
  • topping up funds on a rechargeable gift card or prepaid card; and
  • buying cryptocurrency and securities (including, shares and bonds)

Transactions that are not considered quasi-cash include:

  • topping up prepaid mobile phones;
  • topping up prepaid transport cards;
  • purchasing raffle tickets; and
  • making donations to charities.

The number of interest-free days on purchases and interest rates you pay for reoccurring credit card balances (if you don’t pay your balance in full each month) and cash advances, will vary depending on which credit card you use. You can see all our credit card interest rates here.

Balance transfers

Unless part of a promotion, if you transfer a balance from a non-Westpac account to your credit card, interest is normally accumulated every day, including the day you transfer the balance to your credit card. The interest rate on balance transfers is usually lower than purchase rates, and may have a term that the rate applies after the term the rate will be the same as a purchase rate.

How your payments are applied to your credit card

When you make a payment on your credit card, it is applied against the amount you owe, putting higher-interest transactions ahead of lower-interest ones. Unless otherwise advised as part of any promotional offer, your payments are applied in this order:

  1. All charges, either shown on the current statement or any previous statements, or charged since your current statement.
  2. All interest, shown on the current statement or any previous statement.
  3. All cash advances shown on the current statement, or any previous statement.
  4. All purchases shown on the current statement, or any previous statement.
  5. Any balances transferred from accounts at other institutions shown on the current statement or any previous statement. Should your account contain multiple balance transfers, the balance transfer with the highest interest rate will be paid off first.
  6. All cash advances made since the current statement.
  7. All purchases made since the current statement.
  8. All balance transfers from accounts at other institutions made since the current statement.

Please see Card Conditions of Use for more information.

How to minimise the amount of interest you pay

When you receive your credit card statement, you’ll see the full balance owing is listed, along with a due date and a minimum repayment amount. If you pay the full balance owing, by the due date, you won’t be charged any interest on your purchases.

If you have a balance transfer, you will not be charged interest on the purchase listed in that statement if you pay the statement closing balance, excluding the balance transfer amount, on or before the pay by date.

If you have a balance transfer (unless part of a promotion) or any cash advances you will be charged interest on the daily balance of these from the day you completed the transaction until it is paid off.

A cash advance on your credit card is a particularly high-interest way to borrow money – if you regularly need to withdraw cash, depending on your circumstances you might like to consider other borrowing options. If you want to repay any cash withdrawals before they appear on a statement you will need to contact us on 0800 888 111 as payments will first be applied to all balances that appeared on your last statement.

How do interest free days work for Westpac credit card purchases?

Interest free days give you access to interest free credit if you pay off your balance in full by the payment due date. For some cards you can receive up to 44 days interest free credit, others offer up to 55 days – depending on when you make purchases during the month.

If you only pay off part of your outstanding balance by the payment due date, you’ll pay interest on your purchases from the day you made them. To enjoy interest free days on your purchases, you’ll need to pay off the full balance (excluding balance transfers) by the payment due date in a future statement month.

What happens if you only make the minimum repayment?

Making the minimum repayment each month prevents you from being charged late payment fees on top of interest. But paying only the minimum will mean your balance rolls over and continues to be charged interest. If you are also continuing to spend, your credit card balance will increase. If you are having difficulty managing or paying your credit card or other loans, we have tips and help available.

Hardship assistance can help give you some breathing room if you’re struggling to make repayments on your credit card or other loans. In certain circumstances, we may also be able to offer alternative financial help to customers who do not qualify for hardship assistance. Find out more here.

Paying your full credit card balance each month can help minimise the amount of interest you pay.

What is the minimum repayment?

Each time you get your monthly credit card statement, it will include your minimum payment due. Ideally, you should pay off the full amount on your statement. You need to pay at least the minimum payment amount by the payment due date (otherwise you may incur a late payment fee).

Why you should pay more if you can

Many people just pay the minimum payment due each month without even thinking about it. But unless you pay off your balance in full each month, you’ll pay more interest.

Remember, the minimum payment is just that – the minimum. You can pay more and should pay the full amount to minimise interest costs. The more you pay, the less you owe. That means you pay less in interest – and it also means you can pay off your credit card sooner.

Here’s an example showing the difference paying a bit more each month can make.

This example uses the Sorted Debt Calculator and is based on a credit card with an outstanding balance of $2,000 and an interest rate on purchases of 12.90% p.a. It also assumes you make no additional purchases or cash advances, aren’t charged any fees and the interest rates don’t change.

How long it will take to pay off your balance

How much estimated interest you’ll pay

Amount you pay each month: $60 (the initial minimum payment)

42 months (approx.)

Amount you pay each month: $120

19 months (approx.)

This example shows that by increasing your monthly repayment from $60 to $120 you could pay off your card balance 23 months sooner and pay an estimated $274 less in interest.

Visit the Sorted website to calculate different scenarios and see how you could pay off your own credit card faster and pay less in interest.

Finding a bit extra

If you’d like to pay off your credit card sooner, it’s worth reviewing your budget to see if there are any areas of spending you could cut back on – even if only temporarily. You could then put any savings towards your credit card payment each month. Remember, every little bit more you can pay will make a difference.

Important information

Information in this article refers to personal credit cards, is general in nature only and does not take into account your personal objectives, financial situation or needs.The information may not reflect how interest and charges are calculated under your credit card conditions of use.

This material is for information purposes only. We recommend seeking financial advice about your situation and goals before getting a financial product. To talk to one of our team at ANZ, please call 0800 269 296, or for more information about ANZ’s financial advice service or to view our financial advice provider disclosure statement see anz.co.nz/fapdisclosure

The information is current as at August 2020 and may be subject to change. ANZ recommends you review your personal credit card conditions of use for information about the terms that apply to you.

Interest rates and fees are subject to change.

Lending criteria, terms, conditions and fees apply to all ANZ credit cards. See Rates, fees and agreements for more information.

Paying off your credit card debt can be difficult if your credit card has a high Annual Percentage Rate (APR). If you are making only minimum payments, your credit card balance might not budge since your payments are consistently going toward interest charges. If you want to make progress on paying off the balance on a credit card with a high interest rate, you may want to look into strategies that help you bring down both your interest rate and balance.

Interest rate is charged every month on outstanding credit card balances. The interest is calculated daily on outstanding balances, and then added to the next day’s balance, and so on. As interest is compounded daily your balance continues to increase.

That’s why it can be difficult to pay off high interest rate credit cards, if you only meet the minimum payment each month. Reducing your balance by paying off more than the minimum payment each month is a simple solution, but sometimes you might need to resort to more focused debt management strategies to make a big dent in balances on cards with high interest rates.

Here are some tried and tested options for you to consider. But first, it helps to get a good grip on how debt can grow on credit cards with high interest, especially if you only meet the minimum payment each month:

Let’s say you have a $2,000 balance on your credit card, which carries an APR of 21% and a minimum payment of $56 for the first month. If you were to pay only the minimum each month (minimum payment changes each month as balance varies), it’ll take you about 108 months, or 9 years to pay off your debt, assuming you haven’t added more to this $2,000 balance. You’ll also pay about $2,180 in compounded interest costs over that period of time.

How can I pay off a credit card with high interest rate?

Paying off more than the minimum payment will obviously shorten the time to pay it off in full, as well as lessen the amount of interest you pay. But often it can take a substantial increase in a consistent monthly payment to get to a zero balance on a high interest rate card.

For instance, if you were to increase your payments to a fixed $100 per month (more than minimum payment) on that card with the 21% APR and a $2,000 balance, you’ll still pay about $486 in interest charges but it’ll take only about two years to get the balance down to zero.

How can I pay off my credit card with high interest?

If you want to reduce the balance faster, but can’t afford to substantially increase your monthly payments, try the following:

  • Negotiate a lower interest rate. If you noticed that your interest rate has increased (which will make it harder for you to pay off over time), you may be able to contact your credit card company to negotiate a rate that works for you. If you have a variable interest rate, it may have increased due to state laws and this may be more difficult to negotiate. However, if you have a fixed rate, your interest could still increase due to late or missed payments, a high balance or drops to your credit score. If you are a long-time cardholder with a positive payment history, you may be able to explain your financial situation to your creditor and possibly lower your rate.
  • Request a balance transfer . When you transfer your credit card balance to a low-interest credit card, you’ll benefit from low or zero interest charges for a period of time, usually between 18-21 months. The low-interest promotional period may also motivate you to pay off your entire balance before you are charged interest again. Keep in mind that balance transfers typically charge a fee, which can amount to 3-5% of the amount you are looking to transfer.
  • Make consistent, on-time payments . If you do qualify for a 0% or lower promotional rate, work out how much you need to pay on the card each month to bring the balance down to zero before the period ends. Then put that monthly amount on auto-pay which will prevent you from missing your payment date.

Even if you don’t qualify for a lower interest rate or promotional credit card offer, call your lender and work out what amount you can afford to pay on the high interest rate card over time, and put that amount on auto-pay. Then cut up your card (or ask your credit card company or bank to lock your account) so that you’re not tempted to add any purchases to the balance.

Why is my interest rate so high?

Your credit card interest rate is based on your credit score, inflation, your current balance, and more. If you adopt one of the strategies above to pay off your cards’ balances, you may see your credit score improve and your future rates for credit applications come down.

Understanding Credit Card interest, and your Card’s APR (annual percentage rate), will help you know exactly how much paying with your Card could cost.

How to pay no interest on a credit card

What is Credit Card interest?

When you use your Credit Card, you’re borrowing money, and unless you pay your balance in full within the specified, statement period, you’ll be charged interest on what you owe.

What is APR?

APR is a way of measuring the yearly all-in cost of credit. It takes into account the interest rate, as well as any additional costs associated with a Card, like the annual fee. As an annualised percentage, APR allows you to easily compare credit products and their affordability.

Your purchase and cash interest rates will move up and down in line with the Bank of England Base Rate. Base Rate changes will not apply to any promotional interest rates. Read more on Base Rate and how it may affect your interest here.

Rates may also vary based on your individual circumstances.

How does Credit Card interest work?

Most Credit Card holders can avoid accruing Credit Card interest by paying off their full balance each month. But if you pay anything less than the full balance, such as the minimum payment, you’ll incur interest on outstanding balances, as well as any previously charged interest.

Details of your purchases and the amount of interest you’ve been charged will be clearly displayed in your Credit Card statements.

How is Credit Card interest calculated?

The amount of interest you’ll pay depends on:

  • The interest rate or APR of your Credit Card
  • The amount you spend
  • When you spend it
  • When you pay your Credit Card bill

At American Express we calculate interest on any unpaid balance daily, and add the interest to your account every month when we produce your statement 1 .


Daily interest charges are added up and presented on your monthly statement in one sum

*The daily interest rate is your annual interest rate divided by 365 days

When do you pay interest on a Credit Card?

If you pay off your entire Credit Card bill on, or before, the statement due date (within the interest-free period), you won’t be charged interest. If you opt to pay off your balance over several months, interest will be charged on the amount outstanding. Interest will be applied up until the date you fully repay your balance.

View and keep an eye on your balance and payment due date by logging into the American Express ® App or your Online Account. Read more on how to avoid Credit Card fees here.

Discover our Credit Cards and Charge Cards to find the right one for you.

Credit card interest is what you are charged according to the terms of your cardmember agreement. It works as a daily rate calculated by dividing your annual percentage rate by 365, and then multiplying your current balance by the daily rate. That amount is then added to your bill.

If you’re carrying a revolving balance month to month, you have likely noticed interest charges on your monthly card statement. Do you have questions about how these charges are calculated? Remembering just a few facts about credit card interest will empower you to make the best financial decisions for yourself and your family. Here’s what you need to know:

What Is My Credit Card Interest Rate & How Does Credit Card APR Work?

Your credit card purchases are subject to a standard interest rate called the annual percentage rate, or APR. This number will vary from card to card and person to person depending on factors such as credit scores and your credit card issuer. Your APR is expressed in terms of a year, but credit card companies use it to calculate charges over your monthly statement period. So just like “miles per hour” is a way of measuring speed over an hour, APR measures interest over the time period of a year. But in both cases, the measurement can still be used for longer or shorter time periods.

How Much Is Credit Card Interest & How Is Credit Card Interest Calculated?

To find out how much interest you’re paying on your balance each day, you can convert your APR to a daily percentage rate. To do so, divide your APR by 365, the number of days in a year. At the end of each day, the card issuer will multiply your current balance by the daily rate to come up with the daily interest charge. That charge is then added to your balance the next day, a process called compounding.

For example:

If your credit card has an APR of 15%, it will have a daily rate of 0.041096%. Let’s say a cardholder has a balance of $1,000 at the 15% APR standard interest rate. The next day, interest is added and the balance becomes $1,000.41, plus any additional purchases and minus any new credits or payments. This process occurs each day until the end of the cardholder’s monthly statement cycle. So at the end of the month, the beginning $1,000 balance becomes $1,013 when interest charges are applied at 15% APR.

When Does Interest Start on Credit Card Purchases?

Here’s a great secret about credit card interest: credit card companies usually grant you a grace period on purchases. If a grace period applies, the credit card issuer will not charge you interest on purchases if you pay your entire balance by the due date each month.

However, if a cardholder fails to pay the entire statement balance, or does not make the payment in time, the cardholder has forfeited his or her grace period, and the interest charges will typically appear on the next statement. But cardholders should always check their cardmember agreement for details specific to their account.

Can a Credit Card Have More Than One Interest Rate or APR?

  • Separate interest rates and charges can apply to cardholder’s cash advance balance and balance transfer balances. Furthermore, many credit cards will impose a higher penalty interest rate when cardholders fail to make payments.
  • Most credit card variable interest rates can change with the prime rate. The prime rate is an interest rate that is three percentage points above the federal funds rate, which is set by the Federal Reserve Bank. Because this interest rate can increase, cardholders should be careful not to incur more interest charges than they can comfortably pay each month.
  • Remembering these simple facts about credit card interest will empower you to make the best financial decisions for yourself and your family. Use Discover’s credit card interest calculator to estimate the interest and payoff time for any credit card.

Discover Interest Charges on Purchases

Each provider, and every individual credit card they offer, has their own unique set of terms that’ll set the APR you may pay on purchases you make, so it’s important to carefully research the best credit card option for you. Understanding these terms can help you effectively map out your credit strategy, granting you the points or cash back rewards of your choosing, or simply growing your credit score gradually over time.

For example, Discover typically offers credit cards with 0% introductory APR offers that apply for a certain amount of time and then the standard variable purchase APR would apply to the balance.. Knowing which credit card is best for you soon becomes knowing how your credit score plays into the small differences in terms that set apart other credit card companies, understanding how to start building credit, or even just needing to read a little bit more about APR. If you’re not sure where to start, there are a number of credit resources available online today to help you further your success on a lifelong credit journey.

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

Interest is charged on the balance owing on your credit card. When and how much interest you’ll be charged depends on how you operate your credit card account.

Interest charges

  • The highest interest balances on your statement always get paid off first.
  • Statemented transactions always get paid first.
  • Interest is calculated from the day of purchase when you don’t pay your current balance in full.

If you always pay your statement’s current balance in full by the payment due date, you’ll take advantage of any interest-free days which apply to your card, and avoid paying any interest on the purchases you make.

If you don’t pay at least the minimum payment shown on your statement, you could be charged a late payment fee.

What gets paid off first

When you make a payment to the outstanding balance of your credit card account, there are certain things that get paid off before others.

Any payment will firstly be applied to the highest interest rate balances on your current statement. This means your payment will be applied first to the balances which incur a higher interest rate (e.g. cash advances and purchases), before any balances with a lower interest rate such as a balance transfer. By paying off your highest interest balances first, you could pay less in interest on your outstanding balance.

In general, we’ll apply your payments to those amounts in the order of:

  1. fees (e.g. account fee)
  2. interest charges (e.g. purchase interest or cash advance interest)
  3. transactions (e.g. purchases, cash advances etc).

Here’s an example:

Sue has a Low Rate Mastercard with a 13.45% annual interest rate on purchases. She transfers a $5,000 credit card balance from another bank, for which she gets a 0% p.a. interest rate for the first 12 months. She then uses her card to buy $300 worth of groceries and withdraws $100 from an ATM.

1 March – Balance transfer of $5,000 from another bank at 0% p.a. interest for 12 months
3 March – Buys $300 worth of groceries
5 March – Withdraws $100 from an ATM
30 March – Receives her online statement. Current balance of $5,400 is due on April 25
23 April – Pays $200 and plans to pay the rest over the next few months.

Any payments Sue makes will be applied to her statement in order of highest to lowest interest rate balances. In this case, payments will be applied to the $100 cash advance, and then to the $300 grocery purchase, and then finally to the $5,000 balance transfer. Sue’s payments will be applied in the following order:

Item Interest rate Balance
1. Cash advance 22.95% p.a. $100
2. Purchases 13.45% p.a. $300
3. Balance transfer 0% p.a. $5,000

How interest is calculated

Interest is always charged from the date of each transaction (purchase) when you don’t pay your current balance in full each month. This will be applied to transactions making up the current balance, and any new transactions, until the closing date of your next statement, taking into account any payments made to your credit card account. Therefore, if you pay your current balance in full in one month, but don’t the next, you’ll be charged interest from the date of each transaction or fee on your current statement.

Here’s an example:

Sarah sometimes pays off her credit card balance in full, and sometimes just makes the minimum payment required – it depends on how her finances are looking that month.

She paid the balance shown on her 31 March credit card statement in full, so her opening balance on her next statement at 1 April is $0. On 9 April, she books a trip to Fiji for $700, and her closing balance at 30 April is $700. She plans to pay this balance in several payments over the next few months. Sarah will be charged interest from 9 April, the date she purchased her trip.

Interest-free days

Most credit cards come with a number of interest-free days on purchases. These are usually about 30 days (the statement cycle period), plus a number of days until the payment due date.

Many credit cards have up to 44 or 55 interest-free days, (although some credit cards have no interest free days). The number of interest free days depends on when you make a purchase, however, if you don’t pay your balance in full, you will not receive interest free days on purchases.

  • You can take advantage of interest-free days by paying off your credit card statement’s current balance – in full – by the due date.
  • If you make your purchases earlier in your statement cycle, you’ll get more interest-free days.
  • Interest-free days only apply to purchases, not to cash advances or balance transfers.

When interest-free days don’t apply

Interest-free days don’t apply to cash advances, some bill payments and balance transfers.

  • Interest is charged on cash advances from the date of the cash advance at the applicable interest rate.
  • The rate for cash advances is usually higher than interest charged on purchases.
  • Interest-free days do not apply to credit cards with a balance transfer amount. Therefore if you use a credit card to make a purchase, and it has a balance transfer amount, you’ll be charged interest on the purchase at the applicable interest rate, from the date of the purchase. You may also be charged the applicable interest rate on the original balance transfer amount (usually lower than the purchase interest rate or nil) from the day the balance is transferred to a BNZ credit card.

What counts as a cash advance

A cash advance will be charged whenever you make a cash withdrawal or transfer using your credit card account.

  • Transfers made to other BNZ credit card accounts and credit card accounts with other banks or financial institutions, except for balance transfers.
  • ATM, electronic and over the counter cash withdrawals or transfers.
  • All payments to people that haven’t arranged to accept credit card account payments through BNZ Phone and Internet Banking Services. There are some registered companies which are an exception to this.

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How to pay no interest on a credit card

With most credit cards, you can get a one-to-two-month loan on new purchases simply by paying your balance in full each month. But you can also forfeit your cards’ grace period by either paying your bill late or by intermittently carrying a balance.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

There’s no need to scramble for a 0% APR financing offer with a new credit card issuer. In fact, with most credit cards, your grace period can help you finance large purchases and reap rewards while using a free one-to-two-month loan simply by paying your statement balance in full each month.

Grace periods allow credit card power users to rack up card rewards and benefits for free. You can also forfeit your cards’ grace period by accident – either by paying your bill late or by intermittently carrying a balance. And according to the American Bankers Association, about 41% of all cardholders revolve a balance on their credit cards.

Here’s what you need to know about credit card grace periods and how to use them to your advantage.

What is a grace period?

A credit card grace period is a period of time in which you can charge purchases to your card and wait to pay for them without being charged interest. The period typically lasts at least 21 days and stretches from the end of one billing period until your next payment is due.

You can find out your card’s grace period – and whether it even offers one – by looking at the chart in your card’s terms and conditions. Underneath the APR disclosures, there will typically be a line that spells out how you can avoid paying interest.

If you don’t see a line touting how you can avoid paying interest, that’s a red flag. It could mean your credit card doesn’t offer a grace period. In that case, your purchases will begin accumulating interest on day one of each transaction, even if you pay off your balance in full by the due date.

Be sure to read the terms carefully. For some cards, you may find that only select cardholders are given a grace period.

Note: Only new purchases even get a grace period. Cash advances and balance transfers start accumulating interest as soon as they hit your account.

How to pay no interest on a credit card

How does a card’s grace period work?

During your credit card’s billing cycle, any purchases you make will be recorded on your credit card transaction history and added to your monthly statement balance.

But as long as you’ve been paying off your statement balances in full each month, your card issuer won’t charge you interest for any new purchases during the window of time that the grace period is still active.

So, for example, if you start a billing cycle with a $0 balance, you can buy an $800 couch and let it sit, without paying for it, until the balance for that cycle is due.

The catch: Grace periods are only guaranteed to last as long as you continue paying your monthly balances in full. If you only pay part of a balance one month (for example, by paying just the minimum amount due), your lender may cancel your grace period and any new purchases you make after that will start to immediately accrue interest.

Once you’ve lost your credit card grace period, you may need to wait for a few cycles before it starts up again. Check with your card issuer for more details.

How long does a credit card grace period last?

Your credit card issuer is required under the Credit CARD Act to set your due date at least 21 days after it sent your last bill. So, if your credit card has a grace period, you’ll be given a minimum of three weeks from your last payment to carry a balance before you’re charged interest.

Many lenders offer even longer grace periods, allowing you to stretch your “loan” by a few more days without hitting a finance charge.

Discover, for example, typically gives cardholders 25 days to carry an interest-free balance (23 days for billing periods that start in February). Bank of America, Wells Fargo, American Express and Capital One also have 25-day billing cycles. On the other hand, Barclaycard and Citi give cardholders at least 23 days.

Depending on when you make a purchase, you may have even longer to hold onto your cash before you need to pay it off. That’s because of a quirk in the credit card billing cycle: a purchase you make one month may not actually be due until the next month’s statement.

How your billing cycle works

It’s common to refer to a billing period as a one-month cycle. But, with credit cards, the reality is a bit more complicated.

When you open your account with a credit card company, any purchases you make in that first billing period will be added to your statement balance and included in your credit card bill. But once that billing cycle closes (meaning the bill has been added up and is in the mail), any purchases you make after that will get added to the next month’s balance statement.

So, for example, if your credit card billing period ends on the 23rd of each month, any purchases you make on the 24th or 25th will get billed the next month. And thanks to your card’s grace period, you won’t actually have to pay a finance charge for those purchases until three weeks later, when your bill is due.

Using your grace period to avoid paying interest

You can use your card’s grace period to your advantage to help briefly finance new purchases. It’s similar to asking someone for a loan and promising to pay them back in a couple of weeks. As long as you meet your promised deadline, you’ll only have to repay what you borrowed.

So if you have a planned expense coming up, such as plane tickets or a new appliance, you can strategically wait to make that purchase until after your billing cycle closes. That will give you as much time as possible to put off paying for your purchase, without incurring any interest. But remember: you’ll only get that perk if you continue paying off your balances in full. If you can’t make the payment by the billing cycle, then paying cash would probably help your finances better.

Do banks charge an interest on Credit Card purchases? The short answer is: Yes they do, but you can avoid paying the interest and enjoy your Credit Card free. We show you how.

A Credit Card comes with an interest-free period ranging from 20 to 50 days. This is how you can work out the interest-free period on your card.

Check for two dates on your card’s monthly statement – the statement date and the due date.

  • The statement date is the day on which the bank generates a statement of your previous month’s expenses.
  • The due date is the day on which you must pay the outstanding amount mentioned in the statement. The due date will usually be 20-25 days away from the statement date – a grace period to allow customers to pay the outstanding.

Assume, the statement date for your card is May 1. The May 1 statement will bill you for expenses between April 1 and 30, and the due date will be between May 20 and 25.

If you purchased something on April 2, you get to enjoy almost 50-55 days of interest-free credit. However, if you make a purchase on April 29, then you get only 21 to 26 days of free credit.

While you get a guaranteed credit-free period of 20-25 days, you can maximize the number of days by planning your purchases based on your statement cycles.

Read more about understanding Credit Card statement.

So, when do charges kick in? And what are the Credit Card interest rates?

If you clear your outstanding dues every month on or before the due date, you needn’t worry about paying interest. Interest payments become due only if you carry forward balances of the previous month.

For example, if your total dues are Rs 12,000, and you pay only a part of it on the due date, you will have to pay interest on the amount you carry forward, and any other expenses you make with your Credit Card till you settle the total outstanding.

HDFC Bank Credit Card interest rates range up to 3.4% per month. But the interest rate may be adjusted based on your relationship with the bank and the usage of the card.

If you have made large purchases and don’t want to settle your outstanding in full by the due date, you could opt for SmartEMIs on your Credit Card. This converts your outstanding into a EMI scheme, and you can repay it in pocket-friendly instalments. The interest rates on SmartEMIs are much lower.

Are you looking to apply for HDFC Bank Credit Card? Click here to know more!

Are Credit Card free? Click here to read more!

* Terms & conditions apply. Credit Card approvals are at sole discretion of HDFC Bank Ltd

How to pay no interest on a credit card

Credit cards are convenient, widespread tools that make handling money much more straightforward. If used responsibly, they can help you make larger purchases and earn rewards.

However, credit cards don’t come without costs and mandatory fees. And, if you misuse them, you can face multiple — and expensive — repercussions. One of these repercussions is higher interest rates.

Continue reading to understand what credit card interest rates are, how they’re calculated, what a good interest rate looks like, as well as to learn how to reduce or maintain lower interest rates.

What is a credit card interest rate?

A recent study showed that most American households have acquired over $1,100 in credit card debt, and that accounts for interest charges only. If left unattended, debt in any form can take a toll on your finances and inhibit you from being approved for other ventures in the future.

In the end, interest rates are dependent on the individual, their credit card, how they use that card, and their credit score.

How is credit card interest calculated?

When you fail to pay off the entirety of your credit card bill each month, your credit card company charges you a fee in the form of interest.

Your interest rate is determined by dividing your annual percentage rate (APR) by 365 days. An APR determines how much your loan costs you. Multiply your APR value by the current balance on your card and your daily interest rate. The result is your overall interest fee. Sometimes your intro APR level is lower due to a promotional period offered by lenders.

Different lines of credit have different interest rates, but these rates add a percentage to the balance that you already owe.

There are various online platforms you can use to calculate your personal rate as well.

What is a good interest rate on a credit card?

Interest rates can be a fixed number, or they can be vulnerable to fluctuation. The average interest rate is around 20 percent. Anything below that threshold is a good rate.

How lower interest can help you

You may be wondering why you should care about your interest rates. Paying interest means that you're paying more for your purchases than you originally intended, and, by extension, that you’re borrowing more money from your credit card issuer.

Lower credit card interest can help you pay off debt sooner, which can also improve your overall credit score.

That said, you should review your credit reports regularly. You’re entitled to a free credit report from any of the three major credit bureaus — Experian, Equifax, and TransUnion — once a year. It’s best to take advantage of these reports because if you don’t know where you stand financially, you won’t be able to boost or repair your credit.

According to FICO and VantageScore, two of the most popular models for credit score computations, payment history is the most crucial aspect of your score at 35 percent. Paying off your credit card balance from month to month improves your payment history and increases your credit score. In the eyes of banks and other lenders, you’ll illustrate responsible behavior and the ability to handle credit. These financial institutions will be more eager to negotiate and enter into business with you in the future.

Five ways to reduce credit card interest

Tip #1: Pay off your cards in order of their interest rate.

One way to reduce your interest rates is by paying off your debt with the lowest amount of interest. This way, you’ll be able to settle your debt quicker, gain some confidence in the process of paying off debt, and see an increase in your credit score. Gradually, you’ll work your way up to your most significant debt. This method is also known as the snowball method.

In comparison, you can also adhere to the avalanche method, which is the direct opposite. In this case, you focus on paying off your highest-interest debt first, then the next highest, and so on. This method takes bigger steps, faster.

Tip #2: Make multiple payments each month.

Paying off your full balance will help keep your interest down, either through a series of smaller payments or with one lump payment. Anything you don’t pay as part of your minimum payment shifts over to the next month's billing cycle, and fees will begin to compound. Don’t skip a payment, either, or the fees will be even higher.

Pay off each purchase you make with your card as soon as possible. The earlier you pay, the less you’ll need to worry about missing due dates and acquiring interest you can’t afford on late payments.

Tip #3: Avoid putting medical expenses on a credit card. As of April 2021, nearly 27 million Americans charge medical fees to their credit cards. Medical bills are notorious for being unexpected and costly, especially if you can’t pay them off in a timely fashion. Always talk to your creditor, your doctor, or the hospital itself to learn about other options. Applying for a small personal finance loan is an alternative strategy to using your credit card.

Tip #4: Stay under 30 percent of your total credit limit. There’s a reason experts recommend this course of action: it keeps your interest low while boosting your credit score. Credit utilization accounts for 30 percent of your credit score calculation. Keep an eye on your monthly statement.

Establishing a budget and only making necessary purchases on your credit card will keep your spending and credit utilization ratio in check.

You may also consider using your debit card for a longer period until you get your expenses under control — especially for less important things, like dining out or going to the movies. Then you're withdrawing funds directly from your bank account, so you'll be able to keep yourself more accountable than you would with a credit card.

Tip #5: Get a low-interest credit card for future spending. This can be a smart option for those who consistently carry an unpaid balance on their credit cards, since high interest will accumulate faster. Many credit card companies even offer a zero percent introductory credit card grace period, meaning you won’t have to pay any interest fees on new purchases. This period typically lasts for 12–18 months. Remember, interest fees will apply as soon as this window closes, so a low-rate card will be a huge help.

Another option for you to consider is a card that has no yearly interest fees. Allow us to introduce Point Card.

Designed as a transparent, easy-to-use alternative payment card, Point allows cardmembers to exercise fiscal independence and spend their own money while receiving exclusive benefits. This includes unlimited cash-back and bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shop purchases.

And most importantly, Point comes with no interest rates. Plus, no credit check is required. In addition to offering supplementary safety measures like car rental, phone insurance, and fraud protection with zero liability, Point helps you rest easy and focus on growing your wealth and saving money for what truly matters.

You work hard for your money, and Point will always work hard for you in return, regardless of where you are on your financial journey.

How to pay no interest on a credit card

Tempting as they sound, it’s important to be aware of the different types of cards and offers before deciding what’s right for you.

There are three kinds of 0% interest offers:

0% interest on purchases. These cards offer an interest-free period on purchases, covering anything you pay for using the card during a certain time. Not all cards are created equal. In particular, interest-free periods vary.

0% interest on balance transfers. These cards offer an interest-free period on balance transfers – that’s any money owed on another credit card that you transfer across. Again, the interest-free period will vary and there’s often a fee for balance transfers.

0% on both purchases and balance transfers.

Don’t forget you’ll still have to make minimum monthly repayments on any card to avoid fees. This amount will depend on how much you owe.

Why would you use a 0% purchase credit card?

Credit cards with 0% interest on purchases can be a good way to spread cost and build up your credit score. For example, you could use one to book flights, pay for a holiday or cover the cost of home improvements and then pay it back in monthly repayments.

If you keep up with your minimum repayments and pay off the balance entirely before the end of the interest-free period, you won’t pay any interest. These interest-free periods can last for over 2 years.

You could also use a credit card with 0% interest on purchases as back-up to cover unexpected expenses, like car repairs or a large bill.

The ideal longer-term option is to build up your own emergency fund with savings to make sure you can cover such costs without taking on debt.

What to consider with 0% purchase credit cards

The key thing to consider is the length of the interest-free period. Once this period ends, you’ll have to start paying interest on the amount you owe.

The interest rates that kick in once the introductory offers end can be high. So make sure you’re aware of the Annual Percentage Rate (APR). If you can, aim to pay off your balance completely during the interest-free period.

With this in mind, only spend what you need to on your credit card. The more debt you build up, the more you have to repay and the more interest you’ll incur if you can’t pay it off before the 0% interest period ends.

If you decide a 0% interest card is right for you, it’s worth checking what other benefits or rewards are on offer. For example, some cards will offer cashback and rewards as you spend.

Are 0% purchase credit cards better than personal loans?

The short – and possibly annoying – answer is that it depends on your circumstances and what you’re using them for.

A 0% credit card could give you more flexibility in terms of how much and when you borrow and how quickly you repay it. If you’re able to repay the debt before the interest-free period ends, you won’t pay any interest.

However, a personal loan may enable you to borrow more money for a longer period, with a fixed interest rate and repayments for the whole time. This may be suitable if you prefer to set the total amount you can borrow and have a pre-defined repayment plan.

How to pay no interest on a credit card

0% interest credit cards are credit cards which don’t charge you interest for a set period of time.

People tend to get 0% interest credit cards so they can make expensive purchases upfront – such as holidays, festival tickets or concert tickets – and pay off how much they owe over a set period of time, spreading the cost of their initial payment.

0% APR cards are exactly the same thing as 0% interest credit cards – APR stands for ‘annual percentage rate’. The terms are interchangeable.

Consolidate and shift debt

If you’re paying huge interest fees on other credit cards, you could potentially look at shifting your debt to a 0% interest card – this is known as a balance transfer.

By consolidating your debt with a new credit card that has a 0% intro APR period, you can simplify your payments and focus on paying off your card as soon as possible.

You may also have more time to pay your debt, and if you maintain regular payments on time, you could start to build up your credit score.

Make big purchases you want to pay back over time

Lots of people use 0% credit cards for when they’re making a big purchase. The card will allow you to pay back the cost on a monthly basis and stretch out your payments, rather than paying the full cost all at once.

These kinds of cards are mainly used for buying goods – however, you can use credit cards to take cash out, or pay for things abroad. It’s a good idea to try to avoid doing this wherever possible, as you may be charged interest if you do. Taking cash out using a credit card can also have a negative impact on your credit score.

Emergency cover

Life can throw a fair few curveballs, and if you suddenly need to book plane tickets or get your car fixed, a 0% credit card can help you cover costs with minimum fuss.

It’s a good idea to avoid using your card too frequently, so find one with a high enough limit to cover any emergencies but with a low enough standard interest rate which will allow you to pay the card off quickly once life returns to normal.

  • You can avoid paying interest: However, make sure you’re aware of when the 0% interest offer ends so you’re not caught out with interest charges : if you buy an item worth between £100 and £30,000 on your credit card, you will be able to claim your money back if the retailer goes bust or the goods you’ve bought are substandard
  • Spread the cost of purchases: If you don’t want to make a large upfront payment for an expensive item, you can spread the cost and pay back what you owe in manageable portions
  • The 0% interest rate doesn’t last: That 0% interest rate is only good for an introductory period, after which your interest will increase to its regular rate. Also, just one late payment on these credit card accounts during the introductory period could mean your 0% interest rate could be cancelled early
  • Interest rates after the offer ends can be very high. If you carry on using the card after the introductory offer, the interest rates can then be very high
  • Balance transfers could cost you extra: The 0% interest rate is generally just for purchases, and balance transfers are often subject to a fee
  • The credit card company still makes money from you: Credit card issuers still make money from transaction fees charged to vendors, and often, from fees to you
  • Watch out for deferred interest – it isn’t the same as 0% interest: Deferred interest means if you don’t pay off the entire balance of the card in a given timeframe, then interest going back to the date of the purchase will be added on top of the remaining balance

What happens when the 0% interest introductory offer runs out?

You can keep using your credit card after the 0% period, but any existing balance will accrue interest, and any new purchases may add to this.

Should you continue to repay the balance in full every month, you may carry on being able to enjoy 0% interest fees.

If you want to transfer your balance to a new 0% interest credit card, there is sometimes a fee charged for transferring the debt, which is calculated as a percentage of the amount you’re transferring. It’s normally around 3%.

If you’re looking for a 0% interest credit card, there are plenty of offers online. Once you think you’ve found a card which works for you, there are several things you should find out before you commit:

  • The length of the interest-free offer, and how much interest you could pay once it finishes
  • Check to see if the card offers any benefits – lots of credit card companies offer rewards, such as Air Miles or travel insurance
  • It’s a good idea to speak to your bank, and see if they can offer you a suitable product – lots of banks reward loyalty
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