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Debt
How interest works
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What is the only way to avoid paying interest on your credit cards?

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Paying fully within the grace period is the only way to avoid paying at least some interest.

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What do you call the amount of money you've borrowed from a lender?

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The money you’ve borrowed—whether it’s to buy a home, a charge on your credit card or something else—is called the principal.

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Key Takeaways

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When it comes to debt, the money you owe is often less of a problem than the interest it costs you. Remember a few basic things so you know how much you could really be paying for your debt.

  • Remember that credit card interest compounds—that means you pay interest on the interest, not just the amount you’ve charged
  • Before taking out a loan, research what kind of interest you’ll be paying
  • Try to keep your credit score high to ensure the best interest rates on loans
  • Check your credit report for free every year with Equifax, Experian, or TransUnion
  • Pay your full credit card balance whenever you can to avoid interest charges
  • Remember that when the prime rate moves up or down, it can change how much you pay for debts like a mortgage, car loan, or student loan and it could also change your return on CDs, money market, and savings accounts
  • Remember that the Federal Reserve Bank raises and lowers interest rates according to how the economy performs
  • Keep an eye out for low interest rates when you need to borrow money—even small changes can make a big difference to you