Paying the balance monthly
Not being able to pay off the entire balance is a big deal because interest is based on the entire account balance-not on each individual small purchase. Train yourself to pay off the balance each month before the card's grace period expires. Remember, the grace period is the preset amount of time in each monthly budget cycle that the credit card company will not charge you interest-as long as you pay the entire balance by the payment due date.
Interest adds up
Consider an example. Say you decide to buy a new computer. So you charge $1,600 on a credit card with an 18% interest rate and a minimum payment of 2% or $20, whichever is greater. If you don't pay that off the next month, you'll pay about $24 in interest. That may not sound like much, but $24 might be enough to pay for your monthly basic cable bill.
In one year your interest would have added about $284 to your balance! Imagine if you had carried this balance through all four years of college and only paid the minimum payment due each month. After four years your balance would be about $1,265 and you would have paid over $1,000 in interest charges-on a $1,600 purchase!
Note your regular monthly credit card payment date on your calendar. Then stick to it! Take your monthly credit card payment as seriously as you do your budgeted allotment for gasoline or entertainment.
If you have an outstanding balance, and would like to make additional monthly payments to pay it off, use the online financial calculator "How Long Will It Take To Pay Off My Credit Card", and find out how quickly you can be debt free!
Read the fine print
Be sure to read the contracts that come with credit cards. They may tell you that the grace period applies only to new purchases, but not cash advances and balance transfers. They also indicate what happens if you miss payments-usually, you'll end up with a significantly higher interest rate.