Most people know that the lower the interest rate on your credit card, the better. But not everyone can get cards with low interest rates. If you have poor credit or haven't established a credit history yet, any credit card you are approved for will more than likely have a higher interest rate. High interest rates mean you'll not only pay more if you carry a balance on your card, but make it much harder to pay the balance off.
Luckily, there are plenty ways you can cut the costs on your interest. If you have a high interest credit card, these tips will help you save money on interest:
Interest accumulates on a daily basis. So if you are carrying a balance on your card, you are paying money each day on the balance. For this reason, it’s important to make your card payments as early as possible. Many people wait until they get their statements in the mail or online to make a payment. However, because statements typically come towards the middle or end of the monthly, waiting actually means you’ll end up paying more.
Setting up multiple payments each month, even if each payment is just a portion of what you plan to pay that month, is another way to cut your interest costs. This will whittle your balance down and means interest will accumulate on a smaller amount.
If you’re in the habit of mailing in a check, consider switching to online payments. Online payments are posted within a business day or two, whereas mailing in checks can take up to two weeks to clear and post to your account. In that period of time, interest is continuing to accumulate on the higher balance.
It used to be that even one late payment could send your interest rate skyrocketing with no notice or warning to you. Thanks to the Credit CARD Act of 2009, however, credit card companies can’t raise interest rates on your card until you are 60 days late. Additionally, they must notify you in writing at least 45 days before they increase your rate.
To avoid interest rate increases and the hefty fees that go along with late payments, make sure you pay at least the minimum amount by the due date.
If you do carry a balance on your card, the best way to save on interest is to pay more than the minimum amount each month. The minimum amount keeps you in debt as long as possible, resulting in potentially thousands of dollars wasted on interest.
Even a few dollars extra a month can result in major savings. For example, let’s say you have a credit card with a $1,000 balance at 20% interest with a monthly minimum payment of $25. If you pay only the minimum amount, you’ll end up paying $1,056 in interest. If you were to pay $30 every month (just $5 more a month), you’ll pay $471 a month in interest—that’s over $500 in savings! Not only that, you’ll pay your card off five years sooner.
You will never pay interest if you don’t carry a balance on your card. You can still use your card to earn points and rewards and improve your credit, but paying it off each month saves you interest.
Sometimes, high interest credit cards are the only option. Until you can get a card with a better rate, these tips will help you save money on interest.