Does APR Matter If I Pay Off My Credit Card Each Month?

If you’ve ever owned a credit card before, chances are you’re familiar with the term “APR,” or annual percentage rate. For specifically credit cards, your purchase APR is essentially your interest rate, or the cost of borrowing money. But for those cardholders who pay their balance off on time and in full every month, their APR really doesn’t matter.

Let’s see how managing your credit card payments can help you avoid interest entirely.

Credit cards often have a few different types of APRs, but purchase APR is what many people are referring to when they talk about a credit card’s interest rate. Purchase APR is essentially how much it costs to borrow money, which is what you’re doing each time you use your card.

For any borrowed funds that you don’t pay back on time, your bank will charge you interest on the amount that remains unpaid. For example, if you had an unpaid statement balance of $1,000 on a card with a 20% APR, you would be charged an additional $16.57 in interest for that one billing cycle. You can see how credit card balances quickly balloon the longer they go unpaid.

To find your card’s APR, look at your monthly billing statement or contact your card issuer.

Your purchase APR doesn’t really matter if you pay your statement balance on time and in full. Many credit cards have a grace period, which is the time between when your billing cycle ends and when your payment is due. Since credit cards only charge interest on outstanding balances, if you pay off everything you bought with your card for that period, you won’t owe any interest. While grace periods are not required to be offered by cards, if they are, they must be for a minimum of 21 days.

Paying off your card’s balance on time and in full each month isn’t just a good financial habit that can save you money on interest, but it also means you’re maximizing the value you get from rewards.

Let’s look at a card like the Capital One Venture Rewards Credit Card, which comes with 5X miles on hotels, vacation rentals and rental cars booked through Capital One Travel and no foreign transaction fees. If you pay off your card’s balance each month, you’ll avoid the nearly 30% APR on purchases and balance transfers (!) and it also makes perks like an up to $120 credit for Global Entry or TSA PreCheck that much more valuable. It’s a real $120 credit; if you were also paying interest on a balance, it effectively cancels out, or subtracts from, that credit you’re getting.

We can apply the same thought process to a cash-rewards card like the Wells Fargo Active Cash® Card. With this credit card, you can earn a flat-rate 2% unlimited cash rewards on purchases while paying no annual fee. If you use this card and pay your bill on time and in full each month, you’re essentially getting 2% cash rewards of what you spend back to you for no extra fees.

Remember that rewards and welcome bonuses on new credit cards are really most valuable when you pay your credit card on time and in full every month.

If you find yourself carrying credit card balances month to month, it’s something you should address ASAP. It’s likely that your credit card’s APR is the highest interest rate you’re being charged out of all your debts so it should be prioritized. Cut out other spending, like monthly subscriptions, until that balance is paid off entirely.

And if it’s a sizable amount of credit card debt, consider a balance transfer card where you transfer your outstanding balance to a credit card that has an introductory zero-interest period. That gives you time to make payments to your balance without accruing more interest. With the Citi Simplicity® Card, for example, you’ll have a 0% intro APR for 21 months on balance transfers from date of account opening — nearly two years — to pay off your debt entirely (after, 18.24% to 28.99% variable APR). An intro balance transfer fee of 3% of the amount you transfer ($5 minimum) applies to transfers you make in the first four months, after that a fee of 5% of the amount you transfer applies ($5 minimum).

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every credit card article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of credit card products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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