Bill Payment Tricks to Cut Your Credit Card Interest

"Take care of your pennies and the dollars will take care of themselves" is an old adage, and it applies to these techniques for paying down your credit card debt.

You may not realize it, but each month that you carry a balance, you pay interest on the "average daily balance" on your credit card. In addition, interest begins accruing from the date of your last statement, so your average daily balance every day thereafter includes that interest.

Thus, the sooner you make that payment, the lower your average daily balance, and the less interest you'll pay.

If, for example, you have a balance of $10,000 and you're paying an 18% annual percentage rate. If you make a $350 payment on the last day of the billing cycle, you'll pay interest on an average daily balance of $9,989. However, if you pay on day 2 of the billing cycle, your average daily balance falls to $9,661.

At 18% per anum, you're paying 1.5% per month, so your interest if you wait to pay until the last day will amount to $149.83, while your interest if you'd paid on the 2nd day would be only $144.91. That's a savings of about $5 per month.

It's not huge, but over the course of a year it's $60 that you could have used to pay down your debt or take care of some other obligation.

A second trick is to make a habit of making "micropayments."

Say you worked some overtime one week and saw a little bump in your paycheck. Instead of letting that extra money flow into your general spending, go straight to your credit card account on line and make a micropayment.

You could do the same if you happened on some high value store coupons or found a sale on grocery items you buy regularly. Figure the savings, then go apply it to your balance. Even if you only pay $5 at a time, it will add up.

Remember, each time you make one of these unscheduled micropayments, you're reducing your average daily balance - which means your balance is reduced by the amount of the payment, plus the amount of the interest that would have accrued.

At 18%, the interest on $100 for 15 days is seventy-five cents. Not much, you say? No, it isn't, but when you consider that you've paid that $100 and you won't pay interest on it again next month or the month after that, it begins to add up fast.

Of course, this will only benefit you if you continue making your regularly scheduled payments.


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