Can I avoid finance charges on some forms of credit?
Because many credit card companies make their money by charging consumers finance charges, these charges will be included in most contracts for lines of credit. Credit card finance charge is really just a fancy way of saying interest. The interest is tacked on to a consumer's credit line balance if the consumer does not pay the total balance on the credit card within the billing cycles grace period.
How to Avoid Paying Credit Card Finance Charges
The best way to avoid credit card finance charges is to pay your credit card balance at the end of every billing cycle, within the specified grace period. The grace period for every credit card can be found on the credit card bill. The consumer should be aware, however, that not all charges on the card will include a grace period. For example, some balance transfers and cash advances from credit cards start accumulating interest immediately.
There are some credit card companies that don’t charge interest or finance charges, and instead make their money through charging businesses a transaction fee every time the consumer uses the card. American Express and Diners Club are two companies that offer credit cards with no finance charges. However, these cards require you to pay your credit card balance every month. If you fail to do so, you face hefty charges and late fees. This may be a good option for a consumer who wants to avoid being charged finance charges, but who needs a little incentive to pay their balance off every month.
Other Ways to Avoid Finance Charges
Another way of avoiding finance charges is by transferring a balance from one credit card with a high interest rate to a credit card that offers 0% APR for a certain period of time. This means that the consumer will not be charged any finance charges for the period of time specified, which will allow the consumer to pay off the principal of the credit card slowly, without accumulating additional interest. However, to benefit from these 0% APR offers, the consumer must be responsible with their finances.
Transferring a balance from a high-interest credit card to a low interest credit card will free up the high interest card again, possibly leading the consumer to higher debt if they continue to use the card. Further, many credit card companies that offer 0% APR arrangements will raise the interest or finance charge immediately if the consumer is late on one payment.
Finding the Best Credit Card
If a consumer is unable to pay off their full balance every month or they cannot acquire a 0% APR offer from another credit card company because of a low credit score, the best thing to do is to determine which credit cards have the highest finance charges and pay them off accordingly. The higher the finance charge, the more debt you will accumulate. This means, it is always important to try to make more than the minimum payments on the credit cards that charge the most.