Mercury Minute
Credit cards are convenient. Not only are they a great payment tool and way to help build credit, but they can also help you earn rewards.
However, some people are reluctant to use credit cards because of the dreaded “i” word: interest. The reality is that your credit card can be an advantage in your pocket once you understand how interest works—and how to avoid paying too much of it.
- Spend your credit like you spend your cash
- Pay your credit card on time
- When possible, pay above the Minimum Due
- Transfer credit card balance to avoid interest (if available)
Spend your credit like you spend your cash
It is difficult to manage expenses with rising inflation, but it can help to think of spending your credit as thoughtfully as you spend your cash. If you’re unsure of your credit card balance, it’s easy to log into your account and check. The app makes it even more convenient to always have a good idea of your spending (and spending habits as a whole). There are times when a higher balance may be needed, but it’s important to understand that higher balances may accrue more interest.
Work towards using about 30 percent or less of your credit line—it’s helpful for saving money on interest, having credit available for emergency expenses, and boosting your credit score.1 If you are at a higher utilization today, set a lower utilization goal when it’s possible and keep working towards your goal! The app can help you set and track progress on your goals.
Pay your credit card on time
It’s important to pay your credit card on time, even in times when you can only pay the minimum due. For example, if you have to choose between paying your minimum due on time or paying your full statement balance two days late when you get paid, it is always important to pay the minimum due on time. This keeps your account current, and you can always make an additional payment when you get paid.
Missing a credit card payment means your balance will carry over into the next month, which is when the interest will hit, and your account may be subject to late fees. Struggling to remember your due date? Set up AutoPay for automatic payment convenience.
When possible, pay above the Minimum Due
The more of your credit card balance you’re able to pay, the less interest will accrue on your remaining balance. If you pay off your entire balance each month, you won’t have any interest to pay.2 It’s the ultimate way to save money on credit card interest.
You can also make as many payments as you like during the month. If paying all at once isn’t possible right now, you can split up payments as long as you pay at least the minimum due by your due date. Paying more when it’s possible can help you keep your average daily balance
lower.
Transfer credit card balance to avoid interest (if available)
Sometimes credit cards offer a transfer option where you can move your higher interest debt to your lower interest card. If you’re in a position where you can tackle some of this debt, transferring balances might be an option for you. A lower interest rate could make it easier to pay off debt.
Figuring out how to save money on interest helps keep more money in your pocket. With these tips in your credit card tool belt, you’ll be well on your way to reducing your interest expense and starting to save money instead.
Sources:
1 https://www.bankrate.com/finance/credit-cards/credit-utilization-ratio/
2 https://www.nerdwallet.com/article/credit-cards/how-to-avoid-credit-card-interest