Some people are so afraid to get a credit card because they know it can be pricey but I say without a credit card you won’t be able to build your credit. Now how do you expect for your credit score to begin increasing with no credit cards or loans? You don’t want to be afraid of credit! Instead of being afraid of it, you want to learn how to manage it. I’m going to tell you the secrets to preventing interest rates on your credit cards, how you can have a credit card for years and NOT ONCE get charged with interest fees. Giving you the opportunity to save money and not have to spend any extra money when paying your credit card monthly statement. By simply doing these things your credit score can increase by 30-60 points in months!
What’s Wrong With Paying For Interest?
There’s a lot wrong with paying for interest, when you pay for interest you’re paying more money on your credit card balance than what you originally owed. The problem with interest is that it’s not only a one time fee you pay, you get a percentage of your owed balance added each month to your credit card statement every month your balance is not paid in full. This is exactly why I stress to my clients why they should NOT pay the minimum balance on their credit cards and pay the balance in full each month. When paying only the minimum balance the banks are sure to set you up in a way where in a few months (usually 60 days) an interest rate (15%APR which is actually low, it usually is higher) is added to your balance. Now you’re paying the minimum each month, which usually starts at $25.00 thinking you’re paying towards your original balance when in reality you are really paying towards the interest rate you’ve been charged.
Many of my clients tell me I feel like I’ve been paying this credit card for months and the balance just isn’t decreasing! Now you understand why. Banks make money through interest rates, paying the minimum balance only prolongs the process of you paying the balance in full and collect interest fees. Where it hurts the pocket most is when a person makes a payment towards their balance then continues to rack up charges on the exact credit card that still has a balance. So not only have you not paid the balance from the previous month but now you’ve added a new charge to your credit card, increasing your balance owed.
How To Avoid Interest Fees All Together
I don’t think I can say this enough.. If you can’t buy it twice, DO NOT SWIPE! It’s important to always keep in mind the 30% utilization rate when using your credit card. Like I always say using only 30% of your credit limit not only helps keep your utilization rate low but also makes it easy to keep a balance you can pay in full by the end of the month. The key here is paying your balance in FULL by the end of the month to avoid the charge. Avoid maxing your credit cards out, try only adding balances to your credit card you know you can pay in full by the end of month. Make double payment each month to help lower your balance faster if the balance is a high balance but the goal is to have the balance paid in full by the end of month.
It’s quite that simple. Many credit card users tend to dig themselves in a hole because they believe if they have this much credit available, they have that much money to spend. WRONG, don’t set yourself up to have to pay the bank back more money than you originally owed them.
Now it’s understandable if you’ve already created a balance before reading this blog and now trying to figure out a way to not pay interest fees on your maxed out credit card. I’ll be honest, you’re paying an interest fee all the way until this credit card is paid in full.
That’s okay though because creating a plan to budget in different ways to help lower your balance sooner than later is one way to pay your debt off quickly. Check out my budgeting blog for more tips. If all else fails, you can open a balance transfer credit card with another bank at a low introductory APR to pay the balance off but when opening this kind of credit card you must at least have a fair credit score (600+) and be able to pay the entire balance before the promo period ends. You can also take out a consolidation loan with a lower interest rate and use that loan to pay off all credit cards.
Either way, you won’t get away from the debt so don’t dig yourself in a hole where you have to pay something you can’t afford to pay back.