Financial Wellness Tips: How to Avoid Interest on Credit Cards

It costs money to borrow money. That’s why any loan you take out will have interest attached to the sum that you’ve borrowed. If you borrow $1000 from a bank, depending on the type of loan, there will be some percentage of interest that you must pay back with the principal amount.

Credit card interest, although more complicated, works in much the same way. Unfortunately, because credit card accounts can be easy to open, many people find themselves in credit card debt year after year, saddled with the responsibility to pay back much more than they initially spent due to interest. Let’s dig into how exactly credit card interest works and the steps you can take to avoid getting overwhelmed by the interest charges.

How Credit Card Interest Works

At their core, credit cards are a type of loan. You’re borrowing money until you pay the credit card provider back. Interest rates on credit cards are called an Annual Percentage (APR), which represents the effective interest you will pay if you borrow the money on a credit card for one year. For example, if your APR is 18% and you borrowed $1000, you will owe a total of $1180 in the first year.

Credit card debt is expensive and easy to accumulate. When you accrue this interest over time, it can become more and more difficult to pay off. When you use a card to pay for random purchases, regardless of whether you have the money to make your payments, rolling the balance over month to month adds interest, which only makes these bills higher. 

Credit card debt is incredibly common in the United States. According to Money Geek, Americans had over $841 billion in credit card debt in Q1 of 2022. If accruing interest is making it difficult to pay off your credit card debt, you are not alone. Fortunately, we have a few tips to avoid credit card interest altogether. 

How to Avoid Credit Card Interest

Pay Bills in Full Each Month

The best way to avoid credit card interest is to not have an unpaid credit card balance in the first place. If there is no balance, you don’t have to worry about interest being tacked on to the amount you owe. This is easier said than done, but there are things you can do to help your situation. One of the best ways to ensure that you can handle your monthly payments is by treating your credit card as a debit card or a source of limited funds. You don’t want to spend any more money than you actually have. Doing this allows you to keep up with your monthly credit card bills. 

Think Ahead for Major Purchases

Sometimes, major expenses — like unexpected vehicle repairs or medical bills — pop up out of the blue. There’s no way around that, so we always recommend building an emergency fund. However, for large purchases that you can control, it’s wise to plan ahead and strategize how you’ll pay for them before you spend the money. For instance, if it’s nearing time for you to buy a new car or household appliance, set some money aside from each paycheck to build up a fund for this purchase. You can also look for “buy now, pay later” options that allow you to break up a purchase into smaller monthly payments — just be sure to find out whether they charge additional interest for those arrangements.

Pay Off Existing Debt as Quickly as Possible

This is an important one. The longer you hold on to debt, the more expensive that debt becomes. You’ll accrue more interest over time, and it will become more and more challenging to manage. When possible, pay down that debt! Although it seems counterintuitive, chipping away at credit card debt could save you money in the long run as that borrowed money becomes more expensive over time. When it comes to getting out of debt, every little bit helps!

The Bottom Line

There’s no getting around it; borrowing money is never free, and credit card interest can be expensive. But, by using some of the tips above, you can avoid those extra payments and keep more of your hard-earned money! It may take time to pay down debt and eliminate the effect of interest on your wallet. Still, with persistence and good money habits, it’s entirely possible to avoid credit card interest — and the savings are always worth the effort.