How to Avoid or Reduce Interest Charges on Credit Card

Credit cards provide convenience, but they come with high interest rates if you carry a balance. The longer you take to pay off your debt, the more you’ll end up paying in interest.

For instance, if you owe S$5,000 on a credit card with a 26.9% annual interest rate and only make the minimum payment each month, it could take years to clear the debt while accumulating thousands in interest.

By understanding how credit card interest works and taking proactive steps, you can stop credit card interest charges and take control of your finances.

>> Read more: Credit card rules you should always follow

The simplest way to avoid interest is to clear your full balance before the due date. When you pay in full, you won’t carry over any debt to the next billing cycle — meaning no interest charges.

However, credit cards make spending easy, sometimes leading to purchases beyond your budget. To stay on track, consider checking your transactions regularly throughout the month to ensure you’re not overspending.

>> Read more: What should you do if you can’t pay your credit card bills in full

If you already have outstanding credit card debt, a balance transfer credit card can help reduce interest costs. Many banks in Singapore offer 0% interest for a promotional period, often six to 12 months, allowing you to focus on repayment without accumulating more interest.

For example, if you have $5,000 in credit card debt at 26% p.a. interest, switching to a balance transfer card with a 12-month interest-free period could save you hundreds of dollars—provided you clear the balance before the promotional period ends.

However, keep in mind these important points about balance transfer credit cards: 

• You generally need a good credit score (typically 690 or above) to qualify for these cards.

• Most balance transfer cards charge a fee of 3%-5% of the transferred balance. However, there are a limited number of no-fee options available. 

• After the promotional interest-free period ends, the interest rate will increase, so it's important to pay off the balance before that happens.

>> Learn more: How does balance transfer work and should you get one?

When considering large purchases, there are several ways to manage the expense without racking up credit card debt. It's crucial to choose the right financing option, as failing to make timely payments could lead to fees or interest charges.

• Look for a credit card offering 0% APR on new purchases, which can give you extra time to pay off large purchases without incurring interest. Just keep in mind that interest will apply if any balance remains after the promotional period ends.

• Some store cards or medical credit cards offer deferred interest financing. While this can be beneficial, the catch is that if you don’t fully pay off the balance before the end of the promotion, you’ll be charged interest on the entire original amount, not just the remaining balance.

• Buy now, pay later plans allow you to break large purchases into smaller installments. These plans might include interest or fees, and missed payments could lead to additional charges.

>> Learn more: 6 things to know about 0% interest credit card instalment plans

Managing multiple debts can feel overwhelming, but using structured repayment techniques can help you stay on track. One effective strategy is the debt avalanche method. To apply this method, list your debts from the highest interest rate to the lowest. Then, make the minimum payments on each debt, but direct any extra funds toward the one with the highest interest rate. Once you’ve cleared that debt, shift your focus to the next one on the list, continuing this process until all debts are paid off.

>> Read about: The ultimate credit card balance transfer calculator

You’re not limited to making payments only at the end of your billing cycle. Making multiple payments throughout the month can help reduce your overall interest charges. This is because interest is calculated based on your average daily balance, not the balance at the end of the cycle. By paying down your balance more frequently, you can lower that average and reduce how much interest you pay.

>> Learn more: How is credit card interest calculated?

While having a safety net for emergencies is essential, once you've built up enough savings, consider using any additional savings fund to pay off high-interest debt. For example, if you're paying 15% interest on credit card debt, paying it off is essentially like earning a 15% return on that amount.

>> Read on: How to build an emergency fund on a tight budget

If a balance transfer card isn't an option, a personal loan might be a good alternative for consolidating your debts at a lower interest rate. Personal loans often offer fixed monthly payments for a set term, making it easier to plan your budget and reduce your debt more effectively.

>> More: SingSaver’s best personal loans