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How to Avoid Credit Card Interest


Federal Reserve rate hikes drive up credit card interest rates, meaning it’s more expensive to get into debt and getting out of it could take longer.

Part of the problem is that credit card balances have grown thanks to inflation. Credit card balances have increased by 11% overall since 2021 and even more in some cases, according to a June VantageScore Report. Gen Z and Millennials increased their balances by 30% and 22%, respectively, while low-income consumers saw an almost 25% increase in their card balances.

Ideally, aim to pay off balances and avoid interest charges. But if that’s not possible, here are ways to lower the interest you pay as more Fed rate hikes are coming.

Why Avoid Credit Card Interest?

Credit card interest rates and annual percentage rates are generally the same, unlike loans, and among the highest rates you can pay to borrow money. What makes credit card interest so troublesome is that it gets worse.

When interest is charged on your credit card, the amount is added to your balance. And when you carry that balance forward from month to month, you’ll pay interest on the interest. This is partly why it’s so hard to get out of credit card debt.

The best way to deal with credit card interest is to avoid it in the first place. That means taking advantage of your card’s grace period and other interest-free options, always paying your bill in full and on time, and moving balances as needed.

How to make the most of your credit card grace period

Credit card purchases enjoy a grace period of at least 21 days without interest charges between the end of your card’s billing cycle and the time your credit card bill is due. In other words, you will not be charged interest on your credit card balance until your payment is due.

If you carry a balance, you will lose your grace period. Interest charges will apply to the unpaid portion of your balance and to new billing cycle purchases from the date of each purchase. Note that credit card grace periods only apply to purchases, not cash advances or balance transfers.

You can use your credit card grace period to your advantage by scheduling a purchase on the day your statement opens. Then you have over a month and a half to pay it off before interest charges apply – your entire statement period, plus the grace period of at least 21 days.

Need more interest-free time? Some credit cards offer interest-free introductory periods of 12 to 21 months. With a 0% APR card, you can make monthly payments on your balance and you won’t be charged interest until the introductory period ends and the regular APR is applied.

How to Avoid Paying Interest on a Credit Card

The easiest way to avoid credit card interest charges is to never carry a balance. You can do this by:

  • Full payment of your invoice. If you also pay on time each month, you will not be charged interest on your transactions. “Paying off your credit card in full each month is the best way to avoid interest payments,” says John Schmoll, founder of personal finance website Frugal Rules.
  • Move the debt to a new balance transfer credit card. When you’re faced with a balance that you can’t pay in full by the due date, a 0% APR on balance transfers can save you on interest. However, you will likely have to pay a fee, usually 3% to 5%, to transfer each balance. Also ask yourself if you can avoid accumulating card balances again, says Jeff Richardson, senior vice president of marketing and communications at VantageScore. “A concern comes down to this card having no balance,” Richardson said. “Now you have two balances, two interest rates, and it’s really going to start to be a challenge to meet those obligations.”
  • Planning major purchases. Before you book a big trip or buy a house full of furniture, review your budget and your card statement closing date to take advantage of the grace period.
  • Opening an introductory 0% APR card. If you need more than a month or two to pay for your purchases, a 0% APR card can offer an interest-free way to do so. Just make sure you can pay off the balance before interest charges apply.

How to lower your credit card interest

If avoiding interest altogether isn’t your reality right now due to inflationary pressures, how can you reduce the interest you pay on your credit card? Reducing your debt by consolidating it or making additional monthly payments can help ease interest rate pressures.

“First and foremost, pay off those balances as low as possible,” says Richardson.

Here are some ways to reduce your credit card interest charges:

  • Choose a debt repayment strategy to reduce your balance and interest charges. Use the debt avalanche, snowball, or blizzard method to pay off credit card debt. Choose what suits you best and get started.
  • Make multiple monthly payments to reduce a large balance. Paying off your entire balance may be more than you can handle, but could you spread it over two paychecks or make smaller weekly payments?
  • Consider a debt consolidation loan or a balance transfer credit card. You can transfer your high interest credit card balances to a debt consolidation loan or a 0% APR balance transfer card. You’ll still pay interest on a loan or fees on every balance transfer, but those costs are lower than what allows credit card balances and interest charges to grow unchecked.

Can you negotiate a lower credit card interest rate?

You can negotiate lower interest rates on your credit cards with your card issuers to help reduce your debt further.

“The higher the interest rate, the more your payment goes to the creditor and not to your balances,” says Richardson.

Start with the card you’ve owned the longest and has a solid payment history. You can also start with the credit card that has the highest rate, unless you haven’t had it for a while.

Call the credit card issuer and ask for a lower interest rate, explaining why you’re asking for a discount. Generally, issuers are willing to accept interest rate cuts, although Richardson says it may be easier to get one for borrowers with low-risk behaviors. Low-risk borrowers tend to have low balances and don’t miss payments.

Politely ask what the issuer can do for you, says Schmoll. “Remind them of your history with them, especially if you’ve been a good customer,” he says. “If there are extenuating circumstances, explain to them. The bank will obviously prefer to earn a little less interest than the possibility of you defaulting.”