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I never pay interest on any financial product—here's how

Interest charges are a standard feature of most financial products and can add up fast, but they're avoidable. Here's how I've managed to never pay interest.

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Most financial products charge interest — credit cards, car loan, mortgages, etc. — but there are ways you can avoid interest charges altogether or keep them to a minimum.

I have 10 credit cards and an auto loan, and I've never pay interest on any of them. In order to avoid interest charges, I follow a few rules that help me spend within my means, so I can pay off every bill on time and in full.

While I’m able to avoid interest charges, I understand that it's not something everyone can do. Carrying a balance and incurring interest can be unavoidable at times, especially right now when the country is facing high unemployment rates.

Paying interest isn’t the worst thing if it's necessary to help you make ends meet. But the goal should be to avoid paying high interest charges — I'm sure there are lots of things you would rather do with your money than give it to the bank.

Hopefully, the four financial rules I outlined below can help you minimize interest charges and eventually avoid interest altogether.

Here are the rules I live by to ensure that I never pay a penny of interest.

Rule 1: Shop around for the best terms

One of my golden rules is to shop around for the best deal. This applies to everyday purchases — I like to compare the price of flour, toothpaste or clothing before I buy. I do the same thing when it comes to financial products so I can find the best rates and fees.

Before I apply for a credit card or loan, I do my research online to find the best offers. For credit cards, that means looking at the annual fee, interest rate, intro 0% APR period and rewards. When I applied for an auto loan, I looked for one that offered an APR as low as 0%.

Many financial products allow you to prequalify, which lets you gauge whether you’ll qualify for a product or not. Prequalification doesn’t guarantee you’ll actually be approved once you submit an official application, but it’s a helpful tool to see where you stand. 

Rule 2: Spend within my means

It’s all too easy to make impulse purchases these days, so it’s extra important to create a budget. I have an extensive spreadsheet that lists the amount of money I make each month, the expenses I can’t budge on (like insurance and loan payments) and how much I can afford to spend on everything else (like takeout and other nonessential purchases).

If you don't want to build your own spreadsheet, you can sign-up for a budgeting app, like Mint or You Need a Budget (YNAB). With an app or your own spreadsheet, you can track your monthly expenses and make adjustments until you're spending less than you earn

After you make a budget, the next step is to stick to it and hold yourself accountable.

Rule 3: Pay bills on time and in full

The most important factor of your credit score is payment history, so it’s essential that you always make an effort to pay your bills on time. Additionally, you should pay off your balance in full to avoid interest charges.

I always make it a point to pay on time and in full, setting up autopay on all my accounts for the entire statement balance. The only time I ever carry a balance is when I have an active intro 0% APR period. Even then, I still pay at least the minimum due to keep my account current.

If you have a credit card with a 0% APR offer, you won’t incur interest on select transactions, which may include new purchases, balance transfers or both. You need to make the minimum payments every billing cycle or you may risk your 0% APR being canceled.

Other financial products, like auto loans, commonly advertise 0% APRs. When I purchased a car last year, I was able to qualify for the featured 0% APR deal that allows me to pay off my auto loan without interest for 63 months. These kinds of loans and credit cards typically require good to excellent credit.

If you’re carrying a balance on a credit card that charges interest, consider transferring the balance to a balance transfer card. You can benefit from no interest for up to 18 billing cycles with some of the best cards, like the U.S. Bank Visa® Platinum Card. After the intro period, a 18.74% - 29.74% variable APR applies. Balances must be transferred within 60 days from account opening. Good to excellent credit is often required, though there are cards for fair/average credit.

Rule 4: Have a backup plan

I’ve been fortunate enough to have a steady job that allows me to pay my bills on time, but there’s no guarantee that a job lasts forever. You should always have a backup plan if you find yourself facing an unexpected cash flow problem.

In a worst-case scenarios, it's great to have an emergency fund to tap. I keep at least six months worth of expenses in my emergency fund, so I have a safety net if unexpected situations arise.

You'll also want to reduce your spending to a more bare-bones budget. Think about expenses you can trim, like streaming, music and workout memberships, plus ways to reduce your fixed expenses, like groceries and potentially even housing costs.

You may need to find alternative ways to make money. If you’re laid off, unemployment benefits can provide some income, but they’re often not enough to cover all of your expenses. Consider taking on a side hustle to help you make ends meet until you find a new job.

Bottom line

Sometimes paying interest is inevitable, but there are some steps you can take to avoid these expensive charges. In order to get the best rates and fees — and a lower or 0% APR — you'll need to have a good or excellent credit score.

The good news: There are steps you can take to raise your credit score. Start by paying at least your minimum due on time every month, keeping your balances and disputing credit report errors. Another option is to get credit for on-time utility, phone and streaming service bill payments through the free *Experian Boost™ feature.

Good financial habits lead to a good credit score which in turn leads to access to better financial products. These small steps can save you big money in the long run, and it's worth the time and investment it takes to improve your score.

*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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