Life hack: How to beat credit card interest
If you’ve got a credit card but you’re sick of being stung with interest costs, you might be wondering how you can avoid paying interest but still use the card for the maximum benefits. We’ve broken it down.
Credit card interest – the good, the bad and the ugly
Each month, your card will tell you the total amount you owe on your account, and it will also tell you the ‘Minimum Payment Due’. You might choose to pay just that, or maybe more, but still less than the total. That may be convenient if you’re a bit short but you need to be aware that if you don’t pay in full, you’re choosing to start paying interest and that could be at a very high rate.
Minimum payment amounts look good, but they can be a trap. Pay only the minimum payment, and you could be paying only the interest you owe and almost nothing to cover the purchases you made.
End result: you start going backwards. Unless you pay them off in full each month, credit cards can leave you worse off financially.
How a grace period works
You can pay a huge amount in interest if you don’t use your credit card well, but there are also some advantages to using that card when it comes to interest. Your credit card essentially gives an interest-free loan and a grace period of a few weeks. Let’s say you have a credit card period of May 8 through to June 7 with a due date of July 4. Any purchases made within the period can be made interest-free until the payment due date. If you don’t pay your balance in full on or before July 4, you’ll owe interest on your average daily balance.
Will any of this affect my credit score?
Whether or not you pay interest won’t affect your credit score, but you do need to be careful to pay at least the minimum payment each month on time otherwise you could be looking at a payment default (which does affect your score). If you’re wondering about whether closing your credit cards will affect your score, we’ve got more on that here.
In the market for a credit card? Read up on basic/starter cards, balance transfer cards, and rewards/cashback cards. And don’t forget to check out what offers you could be eligible for in your Credit Simple dashboard.