How to avoid paying interest on your credit card

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Credit cards are great tools if used correctly but card providers rely on customer mistakes to generate profit. Here's how to avoid the pitfalls and enjoy the benefits.

Move your debt onto a 0% balance transfer card

We all have the best intentions with credit cards but it's very easy to spend on them, and it's much harder to repay the balance. If you find yourself paying a high interest rate on your existing credit card balance then it can be worth exploring a 0% balance transfer card.

0% balance transfer cards pretty much do what they say on the tin. They allow you to move existing credit card balances onto a new card with a specified interest-free time period - allowing you to pay the balance off.

You will usually be charged a fee for transferring your balance to one of these cards, so it's worth reading the fine print. There are some fee-free options out there, so to compare your options then try one of the comparison sites like MoneySuperMarket.

Avoid spending on the card once you've transferred your balance

Some of the 0% balance transfer cards will also offer you 0% on purchases, but it's important to avoid this if you can. It's most cost-effective to use these cards simply for what they're designed for - trasnferring and paying off your debt.

Cards that offer 0% on transfers and purchases often offer a shorter interest-free for purchases than for transfers. This means that once the interest-free offer on purchases expires you will be charged on any new spending - which is counter-intuitive to paying off your credit card balance to avoid interest.

Try not to just make the minimum repayments

It's ok to make minimum repayments occasionally if you have other financial priorities, it's always preferable to missing repayments altogether and incurring late fees as well as damaging your credit score.

However, if you consistently only make minimum repayments it'll take a long time to clear and you'll pay more interest over time. The minimum repayment amount is not fixed but is a low percentage of the balance, so, as you repay it, the repayment amount reduces, increasing the time it takes to clear.

Minimum repayment levels are usually set as the higher of £5, 2.25% of your balance or 1% of balance plus interest.

If you only make minimum repayments at this level, a debt of £3,000 charging interest at 17.9% would take over 20 years to clear!

The basic rule is the quicker you repay, the less you'll pay.

Avoid using your card to withdraw cash from an ATM

When you spend money on your card, most providers give you an interest-free period of around 56 days with which to pay off your balance. However, if you withdraw cash during this period then you will incur interest charges from the very moment you take the cash out of the ATM. Interest charged is usually between 2%-3% of the amount you withdraw.


What help is available?

If you're struggling to manage your credit card you can get free help and advice from StepChange, Payplan or Citizens Advice.