The credit card inside your wallet is a powerful tool. In fact, it is more powerful than you can imagine—provided that you know your way around the credit card’s labyrinth of charges and fees. While every swipe, every online transaction may be subjected to different finance charges, did you know that there are several ways you can use your credit card without even paying interest?
Credit card interest
The Bangko Sentral ng Pilipinas found out that credit card debt in 2014 amounted to P157.394 billion, with P15.141 billion classified as nonperforming debt. This staggering amount is only possible because of one thing: interest compounding over time. How did credit cardholders accumulate a hefty bill over time?
In layman’s terms, credit card interest is the fee paid by cardholders to issuing banks based on the balance you have on your account. This is the fee imposed on cardholders for having the ability to spend an amount that should’ve otherwise taken the time to accumulate. Once a cardholder uses his credit card to make a purchase, it is then carried to his account and will be subject to interest.
While all purchases are subject to interest—and other charges they can bill from your account—there are several ways that can allow you to enjoy your credit card without paying interest. Even better, you can do it for life if you have the sheer discipline and an iron will.
Take advantage of the grace period
A lot of cardholders aren’t aware that the grace period exists, and they are missing out on a critical feature that will allow them to save a lot despite their purchases. If there is one thing that will make you save yourself from all the interest you have to pay later on, then the grace period is your friend.
(Check out: Understanding Credit Card Float)
The grace period, otherwise known as credit card float, typically starts at the beginning of a billing period and ends on the due date of the said billing period, which has a usual span of 40-45 days. If you can settle your bills on time and in full during this period, you won’t be charged with interest for all of your purchases during that period.
Although it is a good feature, be careful with credit card float. Failure to pay your balance during the grace period will mean interest will start to kick in, starting the date you made the said purchase. However, keep in mind that you won’t be able to take advantage of the grace period when you have an outstanding balance.
Avoid features that immediately incur interest
While credit card float can allow you to enjoy interest-free purchases, provided that you can pay your bill before the due date, there are several occasions where grace period cannot cover. If you are truly serious about avoiding interests to rack up your credit card bill, then you should avoid these.
One feature not covered by grace period is a cash advance, which allows you to borrow money from your account’s credit limit. While this can be a handy feature especially when you’re in a pinch, cash advance interest kicks at the moment you avail of it. If ever you want to avoid paying interests truly, stay away from cash advance as much as you can, and only use it when extremely necessary.
Another feature that cannot take advantage of the grace period is balance transfer. With a balance transfer, credit cardholders can transfer their debt from one credit card to another for friendlier terms. However, a balance transfer is also not covered by a credit card float.
Tap zero-interest installment programs
Shops offer zero-interest schemes to some items if you pay them in installment basis using your credit card. However, not all zero-interest schemes are actually free from interests, as most of them are just deferred interest financing. How about real zero-interest programs?
Before you buy big-ticket items that can be paid with zero-interest installment, make sure that even when you purchase that item on an installment basis is actually a real zero-interest program and not just some deferred interest program. Consult your credit card provider and see if it is charging absolutely zero interest.
If you are disciplined enough, you can actually pay no interest even if you are using your credit card. Just remember that if your mind is wired to save money, you will work on different ways on how you can avoid interests at all.