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How Do I Avoid Finance Charges?
The most effective way you can avoid credit card finance charges is to learn the full terms of your cards. Knowledge of exactly how the card issuer computes finance charges can help you to anticipate fees and avoid unnecessary expenses. Credit card users should also ensure that the card issuer offers a grace period during which they can pay their balances in full to prevent any finance charges. Another method of avoiding a finance charge is to transfer an existing balance to a credit card with a limited-period, 0% annual percentage rate (APR). Regardless of the method used, avoiding a finance charge always involves responsible credit card use.
Finance charges are usually unavoidable for the average individual; most people tend to try to minimize the amount charged rather than avoid them altogether. A number of issuers, for example, determine the amount charged by summing up the average daily balance of a user's previous and current billing cycles, multiplying it by a predetermine APR, and then dividing the figure by 12 months. Others take a user's average daily balance, divide it by the number of days in the month, multiply it by the APR, and divide the product by 12. Depending on the user's spending behavior, the method used to calculate finance charges can have a significant effect on the final amount.
Most credit card issuers offer a free grace period to users. As long as users pay their balances in full during a predetermined time, the issuers charge no additional fees. Grace periods often come before the due date for payment; the exact timing of the period is usually found printed on the card or its accompanying documentation. In many cases, however, the period does not include any transaction fees such as money transfers and cash advances. Card users should consult their issuers regarding which fees are included with the grace period and make their transactions accordingly.
Individuals with high interest rate credit cards can also opt to transfer their balances to cards that offer 0% APR for a limited amount of time. During this period, issuers do not make any charges outside of any transaction fees. Individuals choosing to use this method, however, need to take great care in adhering to the terms and conditions of the 0% APR period, as many issuers will waive this privilege upon any breach and begin charging larger fees. As such, transferring balances is often used as a last resort for people who need to pay off their outstanding balances without incurring any additional finance charges for credit card use.
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![Paying off credit card balances is the easiest way to avoid finance charges.]()
By: Andrey BandurenkoPaying off credit card balances is the easiest way to avoid finance charges. -
![Paying off a balance in full can avoid finance charges on a credit card.]()
By: bradcalkinsPaying off a balance in full can avoid finance charges on a credit card. -
![Card users should consult their issuers regarding which fees are included with the grace period and make their transactions accordingly.]()
By: BlueSkyImagesCard users should consult their issuers regarding which fees are included with the grace period and make their transactions accordingly.
Discussion Comments
@ElizaBennett - Avoiding finance charges altogether is certainly the ideal, but in the real world, consumers sometimes have to make difficult choices and sometimes minimizing is the best you can do!
For people that do pay their balance every month, you can often request a one-time waiver of finance charges if unforeseen circumstances keep you from being able to pay. We have a card that we always pay the balance on every month, but then one month my husband's paycheck was delayed. (OK, he left it in his shirt pocket and I washed it. Then it took a week or so to get another one.)
I called our credit card company and explained what had happened, and they removed the finance charges from our bill.
If you use a credit card only as a convenience and do not carry a balance, you will never face a finance charge on your credit cards!
I have one credit card that I use for making online purchases, buying gas, etc. -- a credit card offers better consumer protections than a debit card. But I honestly don't know what the interest rate is! When I get the statement each month, I pay the full amount shown, and that ensures that I never have to pay any interest.
I also never use my card for cash advances or bill paying. Most credit cards charge higher rates for that kind of thing than for "regular" use, plus there is generally a fee for each transaction.
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