How to Avoid a Finance Charge
Since finance charges are the credit card issuer’s way of charging you for carrying a balance, the simple way to avoid finance charges is to pay your full balance each month. Here’s how it works. Your credit card has a grace period—typically between 21 and 25 days after your billing cycle ends—which is your chance to pay your full credit card balance and avoid finance charges. You must pay the balance listed on your credit card statement to avoid being assessed a finance charge on your next statement. If you pay just part of your balance, your next billing statement will have a finance charge added 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 entice new customers who want to avoid interest on new purchase or a high interest rate balance from another credit card. During the promotional period, you generally won’t receive a finance charge on promotional balances 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. Deferred interest promotions are often promoted similar to zero percent balance transfers, but they’re a little different. 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.
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. Starting the billing cycle with a balance leaves you susceptible to finance charges on the unpaid balance and any new purchases you make. You’ll 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. Except when a promotional rate applies, balance transfers and cash advances typically don’t have a grace period. When it comes to these types of balances, the only way to avoid a finance charge is to stay away from those transactions completely.
