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Every credit card company in the market today offers its cards at a certain Annual Percentage Rate (APR). This figure is normally displayed on its website, advertised on TV, in the branch or on a leaflet. This should be clear to consumers right before they apply for the credit card. Consumers have the right to make informed decisions about which cards they should use, and for that reason, the information on interest rates should be easy to access. APR is basically the cost of borrowing on that credit card over 12 months. Any fees charged on a particular credit card are incorporated in that annual rate.
The rate charged will vary between credit cards. There is one commonality, and that is the interest rate can be quite high, with the average charge being 17.32% per year. To add to this, the APR that most credit card companies advertise is the representative percentage rate, which is only available for a fraction of credit card applicants. The rest of the applicants will be charged a personal percentage rate, which is usually higher than the representative APR. A lot of factors are considered by the credit card company to decide whether to offer the representative APR or the personal APR. Some of these factors include income, credit score, expenditure and the amount of debt that the applicant already has.
If you have a low credit score, chances of getting the representative APR on a credit card you have applied for are very low. Most of these companies operate on personal APRs and since there is no law obligation for them to display these APRs, most people end up paying more for the credit they get from these cards every year. An easier way out for people with bad credit score is credit repair, which will essentially result in a better APR.
However, credit repaid may take some time, and you are probably looking for a solution right now. It is possible to skip paying interest on your credit card, and here, you will find out six surprising (and legal) ways that you can do so.
Why do you need to skip paying interest?
Paying interest on credit card balances simply means paying for the convenience of repaying the balance over a certain period of time. The disadvantage of this is that you end up paying more money that you actually borrowed and this leaves you with less money for all your other needs. In the end, you find it hard to achieve financial freedom because much of the money you should be saving or repaying other debts with is spent paying back interest charges.
It gets more challenging if you are dealing with a higher interest charge and you are take longer time to repay back your credit balance. Skipping interest charges leaves you with a little more money for your other financial obligations. You can actually avoid borrowing if you make good use of that money, which is why you need to learn how you can avoid paying for credit card interest rates. Here are some things that you can try out.
1. Use the grace period
If you have never used your credit cards for free, the grace period is an important time period for you. You need to capitalize on this period to save a good amount of money on an annual basis. It is not automatic though and one has to really understand how the grace period works in order to benefit from it.
The grace period is basically the interest-free period that is provided by credit card companies but only to card holders who are able to pay their balances by the due date. It is the window of time that starts from the end of your billing cycle to the due date for that cycle. If you are able to pay your balance in full by the due date, you might trigger a break on interest on new purchases during the current billing cycle. This happens if you pay in full consistently though.
This grace period is often referred to as the interest free period and the break on interest can extend to the dates that purchases are made and posted on your balance.
To a lot of people, this may seem simple because the only thing required of them is to clear their balances on time every month. It is tricky though especially if you do not make a habit of it. It will not be easy to regain the benefits of the grace period after a month of carrying a balance.
Again, there are exceptions and pitfalls you must watch out for, for instance you do not get to enjoy free cash advances or convenience checks by paying your balances in full during the grace period. Unlike purchases, these other expenses start building up interest immediately; therefore you may not be free of interests yet.
The cost of carrying a balance on the other hand can be very high. This is because when you carry a balance of any size to the next billing system, you will not get to enjoy the grace period on your purchases during that time period. The credit card company starts charging interest on all your purchases the day you make them, even if you have a balance of just $1. Such a small balance can cost you a lot more that you could expect.
Even though credit cards are not required to provide a grace period, a lot of credit card companies provide them and a typical period might be at least 25 days. Most of the major credit companies have such offers and if your due date falls on a weekend, you are lucky because the deadline is extended to the next business day.
2. Shift your credit card debt to a 0% balance transfer card
Any debt that you have on your credit card will be charged at the Annual Percentage Rate that you got on the day you signed up for the card. To avoid paying the interest charges, consider shifting the debt to a 0% balance transfer card. On this card, the debt will not attract any interest charges for the period of time it is on offer. Try to pay off the debt within the offer period and you will avoid paying more than what you have used.
Balance transfers are allowed for people with a debt on a high interest credit card. They can transfer that balance to another card that charges a much lower interest rate as a way to simplify multiple debt payments and also save money on high interest charges.
Good thing is that there are many of these 0% balance transfer cards that you can use today. The Barclaycard platinum credit card with extended balance transfer for instance will charge no interest on any balance that you transfer to it for up to 27 months. There are other cards to check out for instance NatWest, Virgin Money Credit Card and RBS Platinum credit cards. Each of these has its own unique offers that should help you avoid paying interest charges if you can transfer your debt to them.
Once you successfully transfer your balance, it is important to focus on clearing it before the 0% offer ends otherwise you will have to pay at a representative interest rate of the card that you are using. It is important to remember that the transfer rate will expire at one time. If the window period is over and you have not cleared your debt yet, you might have to shift the remaining debt to another 0% balance transfer card. For this, you will have to pay another fee. There are fee-free options you might want to consider though, if you are not ready to pay the transfer fees.
Other than avoiding paying interest charges on your credit card debts, consolidating your debts simplifies payments. You can easily simplify your financial life if you are only paying balances on just one card. You will only have one card to worry about, which is much easier to keep track of. With just one payment to make each month, you will not worry much about forgotten due dates and accrued late fees.
3. Avoid paying interest on purchases
If you do not have any balances so far but you want to use your credit card to make purchases, a 0% purchase card is what you need. This is because it allows the user to spread the cost of his purchases over a number of months and this does not attract any interest charges. It is a good thing that there are some credit cards which offer a cheaper way to make purchases when you cannot afford to pay for your purchases in cash. However, you have to pay off everything that you borrow on that card every month in order to avoid paying interest charges.
Those cards that offer 0% charge on purchases charge no interest for some months after you get the card. This period of time is referred to as the interest free period. A credit card with 24 months interest free for instance means that you will not be charged any interests on what you buy with the card for those 24 months. You however have to ensure that you make the minimum payments every month.
The longest 0% deals by most credit card issuers can last for more than two years. One great advantage why this is a good deal is that one can always spread the cost of large purchases over several months for ease of payment. This works very well as long as you pay back the money before the interest free period ends.
With this card, you just have to ensure that you do not spend beyond your means. Since you will be required to pay for everything that you borrow by the end of a given period of time, using it irresponsibly will leave you with more financial troubles than your previous situation.
In choosing the best 0% purchases credit card, go for one that offers you 0% for the longest period of time. This simply means that you will have a longer period of time to pay off the balance without being charged interest. Consider the representative APR too, as it is the rate at which you will be required to pay off the balance once the interest free period is over.
4. Set up a direct debit to clear your balance every month
It is clear for everyone who uses credit cards that if they pay their balances every month and have not transferred any balances, they are not charged any interest by their credit card providers. Some credit card companies even offer rewards for clients who are able to pay their balances every month on time.
A direct debit in this case is a very simple, safe and also a convenient way to make regular payments from your bank account. What you do is to agree with your bank on the amount of money to be collected at a certain date of payment, and then the money will be deducted from your account as agreed. Any changes on the collection date and the amount of money to be deducted should be done with your consent
For this to work, you will just be required to complete a direct debit instruction that is given by the company you will be making payments to. Some companies are able to do this online after which it forwards your instructions to your bank in order for them to allow payments to be collected from your account to them directly.
Direct debit comes with great benefits for instance you will be able to spread the cost over the agreed period of time with the company you are making payments to. It is also guaranteed; you will not have to worry about late payments, which can leave you paying high interest charges. It also saves you a good amount of time since you are not going to be making the payments in person. Above all, it gives you peace of mind since it is safe and all the payments are done automatically.
5. Do not withdraw cash from an ATM
After spending on a credit card, one is usually given about 48 to 56 days of not paying interest on that debt. If however you use your card to withdraw cash, this grace period of not paying interest does not apply. This means that you will be charged interest from the time you make the withdrawal.
As if that is not enough, the rate at which you will be charged for withdrawing cash is much higher than what you are charged for making purchases only. You will also be charged about 3% of the amount of money you have withdrawn, which is way too much. This means that withdrawing cash from your credit card is very expensive, therefore it should be avoided if you do not want to keep paying more than you have borrowed on your credit cards.
Besides, making such a withdrawal is bad for your credit score. Such a transaction is recorded on your credit report and the many lenders that will see it will think that you are a risky borrower. For most lenders, it will mean that you are having cash issues and you probably do not have any money left in your bank account, which is why you are relying on your credit card to pay even for essentials.
6. Avoid spending on the card once you transfer a balance
Even though some credit cards will offer you a 0% on both transfers and purchases, you need to be careful with this. If you keep spending on a card that you have transferred a balance to, you might end up paying highly for some sneaky interest charges. In some cases, the 0% purchases offer is shorter than the 0% balance transfer period. A lot of people realize this after the purchase window period is over and they have already been charged interest on all the purchases after that period. The interest charges can be very high after the 0% purchases period. This means that you might end up being charged a lot more than you had anticipated.
All these charges are done even if you pay off your debt in full every month. This is because you still have your transfer balance to clear and if you are making more purchases on that card, you will not be clearing the balance after all.
It is therefore advisable to wait until you clear off the balance to start spending on the card, and then you will avoid paying interest on what you spend after that. Better still, why not use a balance transfer credit card for balance transfers only, then you can use a purchase card for all your purchases?
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