# When Do Credit Cards Charge Interest?

Do you know when your credit card issuer will start charging you interest on your balance? Read this blog post to find out.

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## What is interest?

Interest is the price you pay for borrowing money. When you use a credit card, you are borrowing money from the card issuer. The card issuer charges you interest on the money you borrow. The interest rate is the percentage of the borrowed amount that you pay in interest. For example, if you borrow \$100 from a credit card with a 10% interest rate, you will owe the card issuer \$10 in interest.

### How is interest calculated?

When you use a credit card, you’re borrowing money from the card issuer. The card issuer charges interest on that money, which is how the issuer makes money on credit card transactions.

Interest is calculated based on your account’s APR and your average daily balance. Your average daily balance is calculated by adding up your balance at the end of each day of your billing cycle and dividing that number by the number of days in the billing cycle.

For example, say you have a \$1,000 balance on your credit card with a 20% APR and a 30-day billing cycle. Your daily periodic rate would be .05% (20% divided by 365 days). To calculate your interest charge for the month, you would take your average daily balance (\$1,000) multiplied by the daily periodic rate (.0005) and multiply that number by the number of days in the billing cycle (30), for a total of \$15 in interest charges for the month.

There are two types of interest that can be charged on credit card balances: Simple Interest and Compound Interest. Most credit cards charges compound interest, which means that interest is charged not only on the original balance, but also on any accumulated interest from previous periods.

## When do credit cards charge interest?

Credit cards typically charge interest on cash advances and balance transfers from the date of the transaction. For purchases, there is a grace period of 20 to 30 days, depending on the card issuer, before interest is charged. If you pay your entire balance by the due date each month, you will avoid paying interest on your purchases.

### Grace periods

A grace period is the time between when a purchase is made and when finance charges are added to the balance if the balance is not paid in full. Most credit cards have a 21-day grace period, which means that you have 21 days from the date of your billing statement to pay your balance before being charged interest. If you carry a balance from one month to the next, you will be charged interest on that balance from the date of purchase (not from the date of your billing statement). Your credit card agreement should list the grace period for your card.

### Minimum interest charges

Most credit card companies charge interest on a daily basis, using a daily periodic rate. To calculate your minimum interest charge, the credit card company applies the daily periodic rate to the average daily balance of your account for the billing period.

Your average daily balance is calculated by adding each day’s balance during the billing period and dividing that figure by the number of days in the billing period. This figure is then multiplied by the number of days in the billing period to arrive at the average daily balance.

For example:
You have a credit card with an annual percentage rate of 18%.
The billing period is from January 1st to January 31st (31 days).
Your average daily balance is \$500.
The minimum interest charge would be \$2.48 (\$500 x .18% = \$0.90, \$0.90 x 31 days = \$2.48).

## How to avoid paying interest on your credit card

### Pay your balance in full each month

One way to avoid paying interest on your credit card is to pay your balance in full each month. This means that you will not be charged any interest on the outstanding balance of your credit card for that month. In order to do this, you will need to make sure that you make at least the minimum payment on your credit card by the due date each month, and then pay the remaining balance in full before the end of the grace period. The grace period is the period of time between the end of your billing cycle and when interest is charged on your outstanding balance. If you do not pay your balance in full by the end of the grace period, you will be charged interest on the outstanding balance from the date of purchase.

### Use a 0% APR credit card

A 0% APR credit card can help you avoid paying interest on your credit card balance. These cards offer a 0% intro APR period, which means you won’t be charged any interest on your balance for a set period of time.

This can be helpful if you need to make a large purchase or want to transfer a balance from another card with a higher interest rate. Just be sure to pay off your balance before the intro period ends, or you’ll start accruing interest at the regular APR.

### Use a personal loan to pay off your credit card debt

Paying off your credit card debt with a personal loan could help you save money on interest and get out of debt faster.

If you have good to excellent credit, you may be able to qualify for a personal loan with a lower interest rate than your credit card APR. This means more of your payment will go toward paying down the principal balance of your loan, rather than toward interest charges.

Depending on the terms of your personal loan, you may also be able to get a fixed monthly payment, which can make it easier to budget for your debt repayment.

To qualify for the best personal loan rates, you’ll need good to excellent credit (740 or higher). But even if your credit isn’t perfect, there are still options available to you.