Credit cards offer convenience and higher purchasing power. If used well, you will enjoy all the benefits that come with it without spending much. But this luxury can be turned into a burden if you have the habit of missing payments. Finance charges apply whenever you miss your payments.
Finance charges when allowed to accumulate, can almost defeat the purpose of having a credit card in the first place. The only way to avoid them is to make your payments in full when due.
Finance Charges – How it works
Finance charges are typically the credit card issuer’s way of charging you for carrying a balance. So, the simple way to avoid finance charges is to not carry a balance. Pay your credit card balance in full every month.
Here’s how it works. Your credit card has a grace period, which is typically between 21 and 25 days after your billing cycle ends. You can find the length of your grace period on the front or back of your billing statement. The grace period is your chance to pay your full credit card balance and avoid finance charges. Your statement may even include a disclosure that states the date you have to pay off your balance to avoid finance charges.
Pay the full balance listed on your credit card statement to avoid seeing a finance charge on your next statement. If you pay just part of your balance, your next billing statement will have a finance charge calculated based on the unpaid balance and any new purchases you make.
How Promotional Rates Affect Finance Charges
Some credit cards offer a zero percent introductory interest rate to attract new customers. During the promotional period, you generally won’t receive a finance charge even if you don’t pay your balance in full. However, once the promotional period ends, any remaining balance will start accruing finance charges at the regular APR.
However, there may be some balance that are not subject to the promotional rate, such balances could still attract a finance charge. This is especially so when your promotional rate covers just balance transfers, other purchases you make can attract a finance charge.
Deferred interest promotional offers are often promoted similar to zero percent promotional offers, but they are not the same. A deferred interest offer will backdate interest on your balance – assess the full finance charge from the start of the promotional period – if you don’t pay the balance by the time the promotional period ends.
Always read the terms of your promotional offers to know the best way to avoid a finance charge.
Finance Charges You Can’t Avoid
You’ll typically only get a grace period when your previous balance was paid in full and you started the billing cycle with a zero balance. If you had a balance at the beginning of the billing cycle, you may not be able to avoid a finance charge. You will have to bring your balance to $0 before the grace period applies again.
Unfortunately, you may not be able to avoid finance charges on all types of balances. Balance transfers and cash advances don’t have a grace period, so finance charges start accruing as soon as the balance hits your card. When it comes to these types of balances, the best way to avoid a finance charge is to stay away from those transactions completely. The exception is when your credit card has a zero percent interest rate promotion, but these rarely apply to cash advances.