Credit cards can be confusing. So confusing that, if you’re like a lot of people, you don’t even bother to look at your statements. What we all can agree on is that credit card interest is bad news, real bad. Here’s the good news - if you understand this essential point about those credit card statements, it’s possible to know the secret of how to avoid paying interest all together. You heard that right. So how can it be done? Pay off your statement balance, or the current balance, by your due date to avoid paying interest. Yes, the statement balance and the current balance are different…and yes, that’s confusing. Let us clarify:
You’ll never pay credit card interest, if you pay off your statement balance (the amount from your last statement cycle) each month.
And of course, if you’re able to, paying off the current balance (the amount of all up to date transactions) will also allow you to avoid paying interest.
If you can’t pay off the statement balance or the current balance due, be sure to at least make the minimum payment due (or however much you’re able to pay over that minimum payment) to avoid damaging your credit. Then, whatever is remaining on your statement balance will be subject to interest.
Why It Works
When you don’t pay the statement balance or the current balance monthly on your card, your purchases will start to load on interest, and it can add up super-fast. The more interest you gain on your cards, the harder and longer it can take to get rid of it. That’s why practicing good credit use habits early on can set you up for success in the long run. This will help you keep your credit card as your ally, not your enemy.
- Use your credit card like a debit card.
Only spend what you can afford to pay off each month (hint, a budget is a major help with this). Then you don’t pay any interest. And all those rewards points are a no-annoying-discount-code-needed bonus! Just be careful not to spend the cash you’d use to pay off the card!
- Look at your credit card statement.
Seriously. Sounds simple, and it can be. Set aside 10 minutes to get to know your statement, even if it’s more of an acquaintance than a friend familiarity. There’s a lot going on with a credit card statement, but the best way to manage it is to understand it. And, never hurts to see how much you’re spending on your cards each month.
Credit card debt is one of the toughest hurdles in personal finance, but it’s do-able. Sometimes our Financial Coaches say credit cards are like a kitchen knife – everyone needs one, but they can be dangerous if you’re not careful. Paying off the full statement balance (or the full current balance) means you’ll avoid credit card interest. We’re pretty sure we’d all rather keep our money than send it to a credit card company.
Paying off debt in full each month is the best way to manage a credit card, but not all of us are in that place right now. If you’re still working to conquer your debt, check out this article on strategizing for debt.