Credit is Not Always Free
Credit cards usually come with interest rates – APRs – for purchases, balance transfers, and cash advances.
This means that interest charges will accrue if you carry a balance on your card from month to month (called “revolving” a balance). Many people wonder how to avoid these interest charges, and, when it comes to the purchases you make, the answer is very simple.
All you need to do is pay off your entire balance in full by the time the bill is due. You can do this when you get your statement, or even beforehand during the month.
And that’s all there is to it. Avoiding interest is easy, there are no complicated credit tricks to learn (but this is just for purchases; keep reading to learn how balance transfers and cash advances work).
Balance Transfers and Cash Advances
Instead of interest accruing at the end of the month, like with a typical purchase, balance transfers and cash advances will usually begin accruing interest immediately. This means that you won’t be able to avoid paying some amount of interest on them (and that’s why cash advances are typically not recommended).
Some cards, however, offer a 0% introductory APR for balance transfers you make. For cards like these, you’ll be able to avoid paying interest on the transfer as long as you pay it off within the specified time period.
Q&A Video: What is a balance transfer? Is it a good idea?
An Added Benefit: Credit Utilization
Keeping your card balance down is a good idea in general, but it’s even better if you can pay off your balance before your monthly statement is generated. Why?
This is good for your credit utilization, a major factor when it comes to calculating your credit scores. Your credit utilization is based on the information in your statements, so if you can pay off all (or most) of your account before then, your statement will show a low balance.
This means you’ll be avoiding interest and taking steps to improve your credit at the same time, a great combination. You can learn much more about credit utilization and how it affects your credit score here.