Do Credit Card Interest Rates Really Matter?

Yes (spoiler alert), credit card interest rates matter. Your card's annual percentage rate (APR) tells you how much it will cost to borrow money on your credit card. And with many of today's credit card APRs reaching well above 20%, it's important to take this into consideration if you plan on carrying a balance on your card.

Regardless of its overall importance, a credit card's APR could be insignificant to you personally if you're a careful borrower or you hold a certain kind of credit card. With that in mind, let's take a look at which circumstances make your credit card's APR less impactful on your personal finances.

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

First off, it's important to realize credit card companies don't charge interest right away. You typically have some time between when you make a purchase and when interest starts accruing. Credit card companies will package all your purchases within a billing cycle and send the total outstanding balance as a credit card statement to you. You have until the statement's due date to pay the full balance before your card's APR kicks in.

So, the easiest way to avoid credit card interest is to pay your full balance before the due date. If you do that consistently, you'll never have to worry about your card's APR.

On the other hand, if you don't pay your full balance before the due date, then your credit card's APR really starts to matter. Your outstanding balance -- the portion you haven't paid -- will carry over into your 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 paying your balance in full isn't the same as paying the "minimum." When you see the minimum on your credit card statement, this is the minimal amount you'd have to pay to avoid late penalties. If the minimum is less than your outstanding balance, you'll accrue interest if you leave the balance unpaid.

Credit card interest doesn't matter if you have one of these credit cards

One way to avoid credit card interest for a limited period is to get a 0% intro APR credit card. These cards won't charge interest for a specific amount of time, sometimes as long as 21 months. They can be useful when you're expecting large purchases in your future, or for transferring balances from credit cards with higher APRs.

But you should still be careful with these cards. The 0% intro APR does come to an end. And when it does, you'll pay interest on your unpaid balances, not from the day the 0% intro period ended, but from the day you made the purchase. So if you make a large purchase on day one of 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.

APR matters regardless of what credit card you have. Even if your card has an intro 0% APR, you still want to use your card with a financial plan, as you don't want to be stuck with credit card debt when the go-to APR becomes significantly higher. So long as you use your cards with discretion, your credit card interest doesn't have to become significantly stressful, and you can hold on to the full value of rewards without sacrificing them to credit card debt.