How to avoid and reduce credit card interest
Editor's Note
Any type of interest is annoying to pay, but we all especially want to avoid paying credit card interest as much as possible. It's why our first commandment of credit cards here at TPG is to pay your card balance off in full every month. This is because when you carry a balance, you accrue interest that far outweighs the value of any rewards you earn on your original purchase.
Here are some ways to avoid and reduce credit card interest.
The cost of accruing interest
What makes credit card interest so frustrating is how quickly it accumulates.
If you have a credit card balance of $100 and a 20% annual percentage rate, you'll be charged 5 cents on day one of your interest accrual. The next day, you'll accrue interest on your new balance of $100.05. Your second day's interest will round up to 6 cents.
After a month, you'll accumulate almost $2 of interest — already more than the $1.50 you earned in rewards if you put that $100 purchase on a cash-back card earning 1.5%.
This may not sound significant, but if your beginning balance is $1,000 instead, your interest after a month is around $17. And if your starting balance is $10,000, your interest is almost $170. This interest adds up quickly, so you'll want to avoid it as much as possible.
Related: Are you paying enough attention to your credit card's APR?
How to avoid credit card interest
Pay your credit card bill in full
The simplest way to avoid accumulating interest on your credit card is to pay off your bill in full every month. By doing this, you'll earn rewards without worrying about how much interest you're accumulating on a balance.
Take advantage of the grace period
Thanks to the Credit CARD Act of 2009, you must receive your credit card bill at least 21 days before your payment is due, and most credit cards don't charge interest during this period.
If you need a few extra weeks to pay off your balance, you'll likely be able to wait until the end of this grace period to pay before you start accruing interest. If you charge something to your card at the beginning of your cycle, this can give you just shy of two months to pay off your purchase.
However, not all cards have this grace period. Pay attention to your billing cycle, payment due dates and the fine print in your card's terms and conditions to ensure yours does.
Consolidate your debt
If you have balances on multiple credit cards, it might be worth paying a balance transfer fee to move all your balances to the card with the lowest interest rate to minimize your interest accrual.
Related: How to consolidate and pay off credit card debt
Use a 0% APR credit card
Some cards offer an introductory 0% APR for a period of time after you open the card. If you have an upcoming purchase that you know you'll need time to pay off, a great way to avoid accruing interest is to open one of these cards and use it to pay for your purchase.
Plus, you can transfer your balance from another card to your card with a 0% introductory APR to pay down your balance without accruing more interest. Most cards charge a balance transfer fee, but it's usually much lower than the interest rate you have on the other card; so, it's worth paying to save money in the long run.
Related: The best way to pay your credit card bills
How to reduce credit card interest
Use a debt repayment method
If you're in credit card debt, paying down your card balance is the best way to reduce your interest. This is easier said than done, but there are several strategies you can use to pay it down.
The most popular debt repayment strategies are the snowball and avalanche methods. The snowball method focuses on paying down your smallest debt first, while the avalanche method focuses on tackling your balance with the highest interest rate first. There's no right or wrong way to pay down debt, so choose whichever method feels the most doable.
Make multiple credit card payments per month
Since interest accrues daily after your grace period, you can reduce your interest by making credit card payments multiple times per month. Even if you can't pay the balance in full, paying what you can when you can allows you to accrue less interest than if you let it build all month and make just one payment when your bill is due.
Tap into savings to pay down debt
Often, the interest you earn in your savings account is much lower than the interest you accrue on a credit card balance. For instance, the average interest rate you'll earn on a high-yield savings account is around 4%, while the average credit card APR is over 20%.
If you have money in your savings account that you can use to pay down your credit card balance, you'll save more money by paying down your balance and avoiding more interest than you would earn with the money in your savings account.
Related: 3 reliable ways to pay off credit card debt
Bottom line
The easiest way to avoid paying credit card interest is by paying your account balance in full each month. However, you can also take advantage of your card's grace period or use a credit card with a 0% introductory APR to avoid paying credit card interest on your purchases for some time.
Even if you can't eliminate your credit card balance entirely right now, using a strategy to reduce your balance now can save you serious money in interest in the future.
Related: How to improve your credit score
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| 3X | Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com. |
| 2X | Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com. |
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Intro offer
Annual Fee
Recommended Credit
Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
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Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.
Rewards Rate
| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 3X | Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com. |
| 2X | Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com. |
| 1X | Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases. |
Intro Offer
You may be eligible for as high as 100,000 Membership Rewards® Points after spending $6,000 in eligible purchases on your new Card in your first 6 months of Membership. Welcome offers vary and you may not be eligible for an offer.As High As 100,000 points. Find Out Your Offer.Annual Fee
$325Recommended Credit
Credit ranges are a variation of FICO® Score 8, one of many types of credit scores lenders may use when considering your credit card application.Excellent to Good
Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.