16
Oct

credit card interest

The average American has a credit card debt of $4,717. With an interest rate of 15 percent, it could take over ten years to pay off the balance — and that’s assuming they don’t add to their debt.

Why does debt loom over credit card owners? The fact of the matter is many Americans only make the minimum payment of $189, which means they’re making up for their monthly frugality with huge interest payments. Over ten years, credit card owners will pay a total of $18,155 in interest alone — quite a cost for a credit card debt of about four thousand dollars.

The reason most people fall into the cycle of credit card debt is due to interest rates (also known as annual percentage rate, or APR). Credit cards have notoriously high interest rates — as much as 18 percent. Meanwhile, a home loan could have an interest rate as low as 3.75 percent.

Does that mean you shouldn’t use credit cards? Not necessarily. There are ways to avoid interest rates on your credit cards if you’re disciplined.

Pay Your Entire Balance

Credit card interest is basically the price you pay for the convenience of paying off your debt over time. You have a grace period (usually 21-27 days) to pay off your debt then the interest rate kicks in. If you can pay off the entire debt during that grace period you pay no interest. But, what if you can’t pay off the debt all at once?

Try to avoid only paying the minimum as much as possible. The interest you pay is based only on the minimum due, so if you pay more than that you’re paying down your balance. That means less interest overall and a shorter time to get out of credit card debt.

Transfer Your Balance

If you need to repair a large credit card debt, you could consider an interest-free balance transfer. Balance-transfer credit cards allow you to transfer your balance from one card to the transfer card. You typically have several months (often as many as 18 months) to make monthly payments interest-free.

However, there is a catch: be sure to read the fine print on these cards. At the end of the introductory period, balance-transfer cards typically have high interest rates. Be sure you can pay off the debt before you open a balance-transfer card.

Go with a Credit Union

If you qualify for a credit union, usually you can apply for credit cards with much lower interest rates. This means that, even if you can’t avoid paying interest altogether, you may be able to pay much less interest on your credit card debt.

Carry Cash

Of course, the best way to avoid paying interest on your credit cards is to make purchases with cash. Credit cards can help you build good credit, but they can also get you deep into debt if you’re not careful. Never rely on credit cards to live month-to-month. Always pay with cash if using credit means you will be stuck paying minimum payments.

Want more expert advice for getting out of debt and building your credit score? Contact CreditRepair.com — we offer professional credit repair services and our professional team will help you understand how to get your personal finances back on track.

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