Credit card debt takes a toll. Beyond the stress of having it hanging over you, the interest can cost hundreds or thousands of dollars per year. According to a new NerdWallet study, the average U.S. household with revolving credit card debt — balances carried from one month to the next — incurs interest charges of $904 per year.
The only way to eliminate credit card interest entirely is to pay your balance in full every month. But there are also ways to reduce your interest costs significantly as you pay down debt.
1. Pay off your cards in order of their interest rates
If you have credit card debt on multiple cards, some personal finance experts recommend paying them off according to the size of the balance, starting with the smallest. The idea is that the quick wins will give you momentum and motivation. However, it will save you the most money to pay your cards off in order of their interest rates, starting with the highest-rate card and moving to the lowest.
2. Make multiple payments each month
Credit card issuers assess interest based on your average daily balance, not your balance at the end of the month. Paying more than once per month — say, every two weeks — will reduce that average balance and, with it, your interest charges.
Say you have a credit card balance of $4,000 and will be able to pay $2,000 this month. If you wait to pay until the end of the billing cycle (when you receive your bill) to pay, your average daily balance will be $4,000. If you pay in the middle of the cycle, your average daily balance will be $3,000 — $4,000 for 15 days and $2,000 for 15 days.
The earlier you pay and the more you pay, the lower your average daily balance will be. Consider making a payment each time you get paid and any time you receive a windfall, such as a cash gift or a tax refund.
3. Avoid putting medical expenses on a credit card
According to our study, up to 27 million Americans could be putting medical expenses on credit cards. While unexpected — or even expected — medical bills might not fit into your budget, putting them on a credit card is rarely the answer. Depending on the amount you owe, doing so could cost you hundreds of dollars in interest — and you may be able to pay the balance off while avoiding interest altogether. Doctors and hospitals will often help you set up an interest-free payment plan with reasonable monthly payments. Call your doctor or hospital’s billing department and ask about your options.
4. Consolidate your debt with a 0% balance transfer card
If you owe more than you can pay off in the next few months, signing up for a balance transfer card may be a wise move. When you transfer a balance, you move your debt from one card to another, usually one with a 0% interest rate for 12 to 18 months.
Most cards will charge around 3% of your balance to move your debt, although a few cards have no such fee or waive it for a short time. Getting approved typically requires good or excellent credit. And you can’t transfer debt among cards from the same issuer — from one Chase card to another Chase card, for example.
If you use a balance transfer, make a plan to pay off your credit card debt before the 0% introductory rate expires, so you can avoid paying any interest.
5. Get a low-interest credit card for future spending
Ideally, you’d spend within your means and pay off your credit card every month. But that’s not always possible. If you consistently carry a balance, consider applying for a low-interest credit card for future spending.
The right low-interest credit card for you depends on your situation. If you expect to carry a balance only in the short term, look for a card with a 0% introductory rate and pay it off in full before that rate expires. If you think you’ll be carrying balances beyond 12 to 18 months, get a card with a low ongoing rate.
You’ll likely have your pick of low-interest or 0% cards if you have a good credit score. That starts with paying your bill on time every month — even if you can pay only the minimum — and keeping your balance low relative to your credit limit.