Credit cards not only have great perks, they also have high interest rates. It’s easy to pile up debt if you’re not careful with your finances. However, with the right strategy, you can save on paying interest rates legally with these few tips:
1. Get cards with interest-free periods
There are many cards in the market with an interest-free period, usually between 3 to 6 months from the date of your card’s approval. To make full use of this feature and enjoy your card’s rewards, simply repay the amount you owe within the interest-free period. You won’t chalk up any interest at all, since you’ve already paid back what you owe in full.
2. Cancel your cards to avoid annual fees
Annual fees can range from $50 to $500 or even more. Nonetheless, you can avoid this by cancelling your card after using it for the first year. Not all cards waive off the first annual fee but many cards in the market allow users to enjoy this privilege.
If you don’t enjoy the first year waiver privilege, you can still avoid the annual fee by cancelling your card after you’re billed. Most credit card issuers let users cancel their card 30 to 60 days billing and users will receive a fee in return in the form of a statement credit.
Before you go ahead and cancel your cards, remember to think it through carefully. Cancelling multiple cards can hurt your credit score.
3. Make use of balance transfer fees
Some credit cards let you transfer its balance to a different credit card with a one-time fee (usually 3% of balance transferred). Since this one-time fee is relatively low, you can use this feature to effectively cut down your interest rate payments.
Suppose you owe $3000 with one card with an interest rate of 24% per annum. You can pay off the $3000 in full through balance transfer, which amounts to roughly $3090 in total including the one-time fee. This would save you from paying more in the long run, if you had stuck with paying the regular credit card rate of 24% per annum.
If you’re thinking of getting a card specifically for this purpose, you can find cards that waive the balance transfer fee if you transfer its balance within a month of the card’s approval. Different cards have a different transfer fee limit, so make sure you do your research carefully before you opt for these cards.
4. Repay your balance before the billing cycle
This is perhaps the most straightforward way to avoid paying interests. If you paid back what you owe before you are billed, no interest will be charged to your card. The best way to avoid chalking up interest is to always use your credit card as a means of paying what you can afford, and not what you cannot.
If you’re financially savvy, you can get a lot out of credit cards. It might seem a lot of information to take in at first, but once you know which cards are the best for you, you can easily pay less and avoid paying exorbitant interest fees.
If you’re new to credit cards, you may want to read our article on 6 Things To Know Before Applying Your First Credit Card