How Credit Card Interest Is Calculated and How to Avoid Paying It At All

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Even as interest rates on mortgages and savings accounts hit record lows in recent months, the average credit card interest rate still hovers around 15% today.

And there are plenty of cards on the market with much higher rates than that. You can find sky-high APRs on all types of credit cards — from credit cards for rebuilding bad credit to the most premium travel rewards cards. Credit card interest ranges often surpass 20% or even 25%.

Fortunately, credit card interest is something you can avoid, if you are disciplined with your cards, only charge what you can afford to pay off, and pay your bills on time each month. There are also cards that offer no interest for a limited time. Here’s more information about how credit card interest accrues on your card balances, and how you can avoid it completely:

What Is Credit Card Interest?

Credit card interest is an ongoing fee that applies to any balance you carry on your credit card, but it’s typically expressed as an annual rate by issuers. APR, or annual percentage rate, simply refers to the annual rate of interest.

You can find your assigned APR within the terms and conditions of your credit card. This is often a variable rate, meaning it can change based on federal rate fluctuations. However, the Credit CARD Act of 2009 prevents issuers from raising your rate without advance notice.

Credit card interest does not begin accruing immediately. Interest accrues on any balance remaining after your credit card statement due date. This means you have a period of time from the end of your billing cycle until your due date known as a grace period — to pay your bill without any interest charges.

That’s why consumers who practice good credit habits shouldn’t automatically be scared off by a high APR, says credit expert John Ulzheimer, formerly of FICO and Equifax. “If they plan on paying their balance in full each month, then the APR is irrelevant, because they’ll never have a balance that is subject to the APR,” he says.

How Is Credit Card Interest Calculated?

Card issuers use your daily periodic rate and average daily account balance to figure daily interest charges.

You can determine the daily periodic rate for your credit card by taking your APR and dividing it by 365. If your credit card interest rate is 23%, for example, your daily periodic rate would be .000630%.

The average daily balance on your credit card is the average debt you owe on your credit card throughout an entire billing cycle. You can use your statement to track each day’s spending and find your daily balances, then add them up and divide by the number of days in your billing cycle. 

Once you have both figures, you can multiply them to find the daily interest charge. To find the interest charge for each billing cycle, you’ll multiple the daily interest charge by the number of days in your billing cycle.

For example, consider someone with an average daily balance of $1,000 and a daily periodic rate of .000630%. Each day they would accrue $0.63 in interest charges. Over a 30-day billing cycle, that would add $18.90 in interest charges added to their bill. 

Compounding is another factor to consider, especially if your issuer compounds interest daily and your card has a very high APR. Compounding interest in the above example might look something like this:

DayStarting BalanceDaily Interest ChargeNew Balance
Day 1$1,000$0.63$1,000.63
Day 2$1,000.63$0.63$1,001.26
Day 3$1,001.26$0.63$1,001.89

As interest continues to compound throughout the month, new interest will accrue not only on the existing balance but on top of new interest charges. Daily interest and this compounding effect plays a large role in why credit cards can get costly so quickly — and why the sooner you pay down even a portion of your balance, the better.

How to Avoid Credit Card Interest

The best way to avoid credit card interest altogether is by paying your balance in full before your credit card payment due date. If you can avoid carrying a balance, your APR is “meaningless,” Ulzheimer says.

This requires good credit habits like paying on time, regularly monitoring your account, and making sure you’re not overspending. If you’re worried about making charges you can’t afford to pay off, you can strategize your card use by swiping only for planned purchases, and only when you have the cash to pay your bill in full.

There are also some credit cards that offer 0% interest, at least for a limited time. Some have 0% introductory interest offers on new purchases, which you can use to finance a large, planned purchase you’ll pay down over time. Others offer 0% interest on balance transfers, which is a great way to eliminate existing debt balances. The length and terms of these offers can vary, and many 0% interest credit cards even offer rewards on your spending. 

Pro Tip

Credit cards that come with 0% intro APR can help you avoid interest for a limited time, but you should only use one if you have a plan to pay your balance off. If you carry debt beyond the introductory period, interest will begin accruing at the variable APR you’re assigned right away. 

While Ulzheimer says it’s smart to evaluate rewards programs on 0% intro APR credit cards, he also suggests looking for the longest 0% intro APR period you can find. 

If you’re looking for a card to help you avoid interest on a large purchase or pay down existing debt, a long intro period should be your main consideration. But if you plan to keep the card long-term, a rewards program that aligns with your spending can help you maintain value over time. 

Best Credit Cards With Introductory 0% Interest

The right 0% intro APR credit card can help you avoid interest on a large upcoming purchase or on balances you transfer from other credit cards. Just remember, introductory APR offers only last for a limited time (usually 12 to 20 months), and your remaining balances will accrue interest at the regular variable APR after that. You should have a plan in place before applying for a 0% intro APR offer, and only charge purchases you can afford to pay down before the introductory period ends. 

With that in mind, here are some of our favorite 0% intro APR credit cards available now:

  • Chase Freedom Unlimited®: 0% intro APR on purchases and balance transfers for 15 months, followed by a variable APR of 14.99% to 24.74%. There is an intro balance transfer fee of $5 or 3% of the amount of each transfer, whichever is greater in the first 60 days. Earn 5% cash back on grocery store purchases (not including Target® or Walmart® purchases) on up to $12,000 spent in the first year, 5% back on travel booked through Chase Ultimate Rewards, 3% back on dining and drugstore purchases and 1.5% back on everything else you buy. Also earn an initial bonus of $200 when you spend $500 within three months of account opening. There’s no annual fee.
  • U.S. Bank Visa® Platinum Card*: This card doesn’t offer any rewards, but it does have the longest intro offer available. You’ll get 0% intro APR on purchases and balance transfers for 20 billing cycles, followed by a variable APR of 14.49% to 24.49%. There’s no annual fee, although a 3% balance transfer fee (minimum $5) applies if you use this card to consolidate debt.
  • Capital One Quicksilver Cash Rewards Credit Card*: Earn 0% intro APR on purchases and balance transfers for 15 months, followed by a variable APR of 14.99% to 24.99%. Plus, get 1.5% back for each dollar you spend, as well as a $200 cash bonus when you spend $500 within three months of account opening. There’s no annual fee.
  • Citi Custom Cash Card*: 0% intro APR on purchases and balance transfers for 15 months, followed by a variable APR of 13.99% to 23.99%. Earn 5% back on up to $500 spent in the eligible category you spend the most in each billing cycle, plus 1% back on other purchases. Also earn a $200 cash bonus when you spend $750 within three months of account opening. There’s no annual fee.
Chase Freedom Unlimited®

Chase Freedom Unlimited®

Editor’s Score: (4.7/5)
  • Intro bonus:
    $200
  • Annual fee:
    $0
  • Regular APR:
    14.99% – 24.74% Variable
  • Recommended credit:
    670-850 (Good to Excellent)
  • Apply Now externa link icon At Chase’s secure site

Capital One Quicksilver Cash Rewards Credit Card

Capital One Quicksilver Cash Rewards Credit Card

Editor’s Score: (4.2/5)
  • Intro bonus:
    $200
  • Annual fee:
    $0
  • Regular APR:
    14.99% – 24.99% (Variable)
  • Recommended credit:
    670-850 (Good to Excellent)
  • Learn more externa link icon At our partner’s secure site

*All information about the AAdvantage® Aviator® Red World Elite Mastercard®, Capital One Quicksilver Cash Rewards Credit Card, Citi Custom Cash Card and U.S. Bank Visa Platinum Card has been collected independently by NextAdvisor and has not been reviewed by the issuer.