Top Tips to Avoid Paying Credit Card Interest
How to avoid credit card interest
Did you know Australians are paying $5 billion in credit card interestevery year1? Interest on credit cards can add up, however by following some simple steps you can ensure you’re only paying what you need to.
For credit cards, interest rates are typically stated as an annual percentage rate (APR) which includes the interest on the loan as well as fees and other costs.
Here are our top tips for avoiding credit card interest and taking advantage of the interest-free period on your credit card (if available).
1. Pay off your balance in full each month
The easiest way to avoid paying credit card interest is by paying off your full balance each billing cycle (on or before your statement’s due date).
By only spending what you can afford to pay back that period, your purchases won’t collect interest and you will only need to pay back the amount you actually used, thus avoiding credit card interest.
Here are some helpful tips to help you repay your balance in full each month:
1. Set up calendar reminders,
2. Set up auto-repayments (direct debit) each month,
3. Ask your bank to move your due date closer to your payday.
Case Study:
How much could I save in interest by paying my balance in full?
Anna has a Citi Clear Platinum Card with an outstanding balance of $2,000. The debt accrues interest at the purchase rate, which is currently 12.99%p.a. ongoing, and Anna must repay 2% of the card balance every month.2
- Minimum repayment only. If Anna only pays the minimum amount each month, it will take her almost 9 years to pay off the balance. It will also cost her $1,261 in interest.3
- Paying more than the minimum. If Anna increases her payments to $100 each month, she will save $995 in interest repayments. She will also pay off her debt in under 2 years.3
2. Take advantage of your credit card’s interest-free period
Credit cards typically come with an “up-to-44 days” or “up-to-55 days” interest-free period on retail purchases, also known as a “grace period”. During this period, you will not need to pay interest on purchases made, as long as you pay them back in full on or before the statement due date. In order to qualify for these credit card interest-free days, you need to have fully paid your closing balance, including balance transfer, by the due date for the previous month/s and have no outstanding debt, including balance transfers.
As stated above these periods are “up-to” a certain amount. So if your card offers “up-to-44 days” interest-free and you make a purchase on the first day of that billing cycle you will receive 44 interest-free days on that purchase. However, if you make a purchase on the last day of your billing cycle, then you’ll only receive interest-free days up until the payment is due.
The best way to take advantage of you interest-free days is to make any purchases at the beginning of your billing cycle and pay them off by the statement due date. Most Citi credit cards offer “up to 55 days” interest-free, giving you more freedom to pay your balance on time.
3. Use a rewards card
While this may not count as a way to avoid paying credit card interest, it still has its nifty benefit that we just couldn’t leave out.
If you are spending within your means and repaying your balance in full, on time, you may as well earn rewards while you spend – as well as avoiding interest. By signing up for a rewards card that complements you spend, you could earn yourself cash, airline miles or retail points for simply spending as you normally would. Citi offers a range of rewards credit cards, each with their own features, rewards and travel benefits. Compare our rewards cards.
4. Avoid cash advances
Withdrawing cash from your credit card like through an ATM, bank branch or at the checkout is known as a “cash advance” and is not considered a purchase. Because of this, interest-free days don’t apply. So, unfortunately, you will start to accrue interest on your cash advance from the day you withdraw it.
Therefore, taking out a cash advance on your credit card is not recommended as it is impossible to not to be charged interest on it.
Transactions that are considered cash advances:
- Withdrawing cash from your credit card account at an ATM, bank branch or over the counter
- Transferring an amount out of your credit card and into another account
- Bills paid with non-BPAY registered billing service
- Purchasing foreign currency or traveller's cheques
Looking for a credit card with low interest rates? Citi offers a range of low fee, low interest credit cards. Check out our range here.
Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. You should consider if this advice is appropriate for your situation. We recommend you read the Product Disclosure Statement (PDS) or Terms and Conditions, available online or via a Citibank branch, in addition to seeking independent legal, financial and taxation advice on your personal circumstances before acting on the information contained in this material.
References:
1. https://download.asic.gov.au/media/4801724/rep580-published-4-7-2018.pdf
2. https://www.citibank.com.au/cards/mobile/pdf/Key_Fact.pdf
3. https://www1.citibank.com.au/credit-cards/calculators/repayment-calculator
How to avoid credit card interest
Did you know Australians are paying $5 billion in credit card interestevery year1? Interest on credit cards can add up, however by following some simple steps you can ensure you’re only paying what you need to.
For credit cards, interest rates are typically stated as an annual percentage rate (APR) which includes the interest on the loan as well as fees and other costs.
Here are our top tips for avoiding credit card interest and taking advantage of the interest-free period on your credit card (if available).
1. Pay off your balance in full each month
The easiest way to avoid paying credit card interest is by paying off your full balance each billing cycle (on or before your statement’s due date).
By only spending what you can afford to pay back that period, your purchases won’t collect interest and you will only need to pay back the amount you actually used, thus avoiding credit card interest.
Here are some helpful tips to help you repay your balance in full each month:
1. Set up calendar reminders,
2. Set up auto-repayments (direct debit) each month,
3. Ask your bank to move your due date closer to your payday.
Case Study:
How much could I save in interest by paying my balance in full?
Anna has a Citi Clear Platinum Card with an outstanding balance of $2,000. The debt accrues interest at the purchase rate, which is currently 12.99%p.a. ongoing, and Anna must repay 2% of the card balance every month.2
- Minimum repayment only. If Anna only pays the minimum amount each month, it will take her almost 9 years to pay off the balance. It will also cost her $1,261 in interest.3
- Paying more than the minimum. If Anna increases her payments to $100 each month, she will save $995 in interest repayments. She will also pay off her debt in under 2 years.3
2. Take advantage of your credit card’s interest-free period
Credit cards typically come with an “up-to-44 days” or “up-to-55 days” interest-free period on retail purchases, also known as a “grace period”. During this period, you will not need to pay interest on purchases made, as long as you pay them back in full on or before the statement due date. In order to qualify for these credit card interest-free days, you need to have fully paid your closing balance, including balance transfer, by the due date for the previous month/s and have no outstanding debt, including balance transfers.
As stated above these periods are “up-to” a certain amount. So if your card offers “up-to-44 days” interest-free and you make a purchase on the first day of that billing cycle you will receive 44 interest-free days on that purchase. However, if you make a purchase on the last day of your billing cycle, then you’ll only receive interest-free days up until the payment is due.
The best way to take advantage of you interest-free days is to make any purchases at the beginning of your billing cycle and pay them off by the statement due date. Most Citi credit cards offer “up to 55 days” interest-free, giving you more freedom to pay your balance on time.
3. Use a rewards card
While this may not count as a way to avoid paying credit card interest, it still has its nifty benefit that we just couldn’t leave out.
If you are spending within your means and repaying your balance in full, on time, you may as well earn rewards while you spend – as well as avoiding interest. By signing up for a rewards card that complements you spend, you could earn yourself cash, airline miles or retail points for simply spending as you normally would. Citi offers a range of rewards credit cards, each with their own features, rewards and travel benefits. Compare our rewards cards.
4. Avoid cash advances
Withdrawing cash from your credit card like through an ATM, bank branch or at the checkout is known as a “cash advance” and is not considered a purchase. Because of this, interest-free days don’t apply. So, unfortunately, you will start to accrue interest on your cash advance from the day you withdraw it.
Therefore, taking out a cash advance on your credit card is not recommended as it is impossible to not to be charged interest on it.
Transactions that are considered cash advances:
- Withdrawing cash from your credit card account at an ATM, bank branch or over the counter
- Transferring an amount out of your credit card and into another account
- Bills paid with non-BPAY registered billing service
- Purchasing foreign currency or traveller's cheques
Looking for a credit card with low interest rates? Citi offers a range of low fee, low interest credit cards. Check out our range here.
Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. You should consider if this advice is appropriate for your situation. We recommend you read the Product Disclosure Statement (PDS) or Terms and Conditions, available online or via a Citibank branch, in addition to seeking independent legal, financial and taxation advice on your personal circumstances before acting on the information contained in this material.
References:
1. https://download.asic.gov.au/media/4801724/rep580-published-4-7-2018.pdf
2. https://www.citibank.com.au/cards/mobile/pdf/Key_Fact.pdf
3. https://www1.citibank.com.au/credit-cards/calculators/repayment-calculator