Do credit card interest rates really matter?

Yes (spoiler alert), credit card interest rates do matter. Your card’s annual percentage rate (APR) tells you the cost of borrowing money from your credit card. And since many credit card APRs today hover in excess of 20%, it’s important to take this into consideration if you plan to carry a balance on your card.

Regardless of its overall importance, a credit card APR can be unimportant to you personally if you are a keen borrower or have a certain type of credit card. With that in mind, let’s take a look at the circumstances that make your credit card APR less of an impact on your personal finances.

Pay your balance in full and you can forget about credit card interest

First, it is important to realize that credit card companies do not charge interest right away. You usually have some time between making a purchase and when interest starts accruing. Credit card companies will package all of your purchases within the billing cycle and send you the total balance owed in the form of a credit card statement. You have until the statement due date to pay the full balance before your card’s annual interest rate begins.

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Therefore, the easiest way to avoid credit card interest is to pay your balance in full before the due date. If you do this consistently, you will never have to worry about your card’s annual percentage rate.

On the other hand, if you don’t pay your balance in full before the due date, your credit card’s APR truly begins to matter. Your outstanding balance – the portion you haven’t paid – will carry over to the next billing cycle. Your credit card company will charge interest on the unpaid balance, which will accrue until you pay it off.

Keep in mind that paying your balance in full is different from paying the “minimum”. When you see the minimum on your credit card statement, that’s the minimum amount you have to pay to avoid late fines. If the minimum is less than your outstanding balance, you will accrue interest if you leave the balance unpaid.

Credit card interest does not matter if you have one of these credit cards

One way to avoid credit card interest for a limited time is to get a 0% upfront credit card. These cards will not charge interest for a set period of time, sometimes up to 21 months. They can be useful when you are anticipating large purchases in the future, or for transferring balances from credit cards with higher APRs.

But you still have to be careful with these cards. The introduction annual percentage rate ended at 0%. And when that happens, you’ll pay interest on your unpaid balances, not from the day the 0% advance period ends, but from the day of purchase. So if you make a large purchase on Day 1 on a card with a 21-month 0% APR period, you’ll pay interest for that full period if you leave the purchase unpaid after 21 months.

The APR is important no matter which credit card you have. Even if your card has a 0% APR offered, you still want to use your card with a financial plan, because you don’t want to be stuck in credit card debt when the transition to the APR becomes much higher. As long as you use your cards with care, your credit card benefits don’t have to become overly onerous, and you can keep the full value of the rewards without sacrificing them to credit card debt.

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