Save On Credit Card Bills By Paying Earlier

By making one simple change, you can use the same amount of money to pay off your credit card faster.

All you have to do is not wait around for the credit card company to send you a bill and make your payments earlier.

If you’re carrying a balance that you’re trying to pay down, every day the interest is compounding. The take what you owed yesterday, then calculate interest and add it. The next day, they take that higher number and calculate interest on it and add it on too, growing and growing every day.

So if you can make payments early, you reduce the balance and the interest that gets added on will be less. Red Tape Chronicles gives this example: “Two consumers with a $2,000 balance and a 29 percent interest rate make a $3,000 purchase during the month. One buys on the 5th, the other on the 27th. The first consumer pays $113.62 in interest; the second about half that: $61.18.”

No Credit Needed has a spreadsheet you can download so you can play around and see how making different payment schedules will affect the total amount you end up paying.

A lot of people get paid bi-weekly, so instead of making one payment at the end of the month, you could make a payment with each paycheck. Or make a payment every time you find a quarter on the street. Or you get grandma-money in the mail. Every little early bit helps. (Then, once you’re totally paid off, avoid charging more than you can pay off in a single month so you don’t end up paying interest again.)

How to save money on: Credit card bills [Red Tape Chronicles] (Photo: Joe Lanman)

Comments

Edit Your Comment

  1. ajlei says:

    I always try to pay as soon as I have money available, and virtually always at least double the minimum balance.

    I’ll note that my credit card is used almost exclusively for school textbooks, and other school-related purchases.

    • OprahBabb says:

      @ajlei: I recently opted to start paying my CC bill twice a month instead of just once a month to help me budget better, no necessarily for a lower interest rate, but this is definitely good to know!

  2. Ronin-Democrat says:

    STOP STOP STOP

    There is nothing wrong with paying interest.
    What people need to learn is to:
    get the lowest rate possible
    understand as you state above how interest is calculated and make purchase based on that -wait until last day of billing cycle to buy a big item-
    stop thinking that cash back and points have value, THEY DO NOT
    maximize the benefits of their card -insurance, end of year invoice like american express does-
    realize that you need a credit card to buy an airplane ticket, rent a car or hotel room easily

    buying on time is an important part of the consumer purchase cycle.
    what makes it bad is when people overextend themselves.

    • DePaulBlueDemon says:

      @Ronin-Democrat:

      There is a lot wrong with paying interest.

      Interest rates are meaningless unless you spend more than you can afford, in which case, yes, you should get the lowest rate possible.

      Yes, you do need a credit card to buy an airplane ticket or rent a car… But no one here is disputing that. I’m not sure what you meant by it.

      • Collie says:

        @DePaulBlueDemon: Actually you only need a debit card with VISA or MC to buy an airline ticket or rent a car. Stop speaking about things you don’t have the facts. I just bought 3 round trip tickets from Chicago to Hanoi, Vietnam with my debit card. I don’t have a credit card anymore.

        I have the best option, and it actually pays me interest. I save money in my checking account at 5% a month and then buy it when I have saved enough. I don’t have to worry about chasing interest payments or worry about the bank jacking my rates, or adding fees. More people should try it and we would not be in this giant shit hole caused by the misuse of credit.

        • sinfonian94 says:

          @Collie: With a DEBIT card and not a CREDIT card, you can rent a car, but you have to put down something like a $300 deposit.

          • Collie says:

            @sinfonian94: No they just put a hold on the card, that clears when you return the vehicle. I do it all the time. And it is usually $200, some hotels do the same thing. It is still better than carrying a balance and paying interest.

            • Coles_Law says:

              @Collie: True, but for many people, myself included, a $200 bite out of my checking account hurts.

            • econobiker says:

              @Collie: Reserve/ride out of the lot with a credit card and pay with a debit card upon return- you may have to go to the desk but it is worth not paying interest on the credit card to do that.

              • JustThatGuy3 says:

                @econobiker:

                Again, why would you pay interest? Saying “if you use a credit card, then you will pay interest” is like saying “if you use a debit card, you will pay overdraft fees.” It’s just wrong.

        • anonymous001 says:

          @Collie: However, if you are using a debit card while on travel, you place yourself at more liability for fraudulent charges.

          In my experience, most credit VISA and MC cards immediately refund fraudulent purchases, and send something for you to sign after a month or so.

          As for debit cards… my account was fraudulently charged while overseas. I had to go to the branch back home to sign a notarized statement that it was so, and the amount was never refunded, since they never found the perpetrator (it was under $20, I just wanted a new card number after that).

          Also most credit cards offer free car rental insurance (liability, at least), in most countries.

          I have 0 balance on my credit cards, but owning them is not at all a liability for me, since they are an asset when dealing with over seas retailers who I do not know are honest are not.

        • JustThatGuy3 says:

          @Collie:

          “I save money in my checking account at 5% a month”

          No, you don’t. You may get 5% A YEAR, but if your checking account is promising you 5% a month, your money’s at the First National Bank of Ponzi.

    • Meathamper says:

      @Ronin-Democrat: What a nice fairy tale. Thank you.

    • Ryan Vaught says:

      @Ronin-Democrat: The problem with paying interest is it’s money going in the wrong direction. Unless you have income coming in from your debt, in an amount greater then your debt service/interest amount, interest is an expense just like your coffee at starbucks. Step one, pay down your debt, step 2 save your money, step 3 earn a return. The bad thing about paying interest is it means you got 2 more steps to go!

    • goodywitch says:

      @Ronin-Democrat: I agree, but I think you need to clarify what you’re stating. You need a bit of debt to make large purchases, so you can make use of the items currently instead of simply saving it. The interest is the convenience so that you don’t have to save now. This is for items like a fridge, car, homes, washing machines, items that are necessary and a huge investment, but will save money in the long run. Instead of saving and not using the item, you can use the item now.

      Debt is also OK if it’s a relatively small amount of interest compared with how much you’re earning by placing the money elsewhere. If you paid off the house, you’re losing money. By paying the debt, you’re not making use of the money that can earn you interest. You can take out a loan for say 7%, and place that money in a place where it can earn you 10%, so it’s a 3% interest that you’re gaining, as opposed to letting the money sit there and think, well, at least I own my house free and clear.

      Here’s the thing: MOST PEOPLE ARE IDIOTS. They use their credit cards for everyday purchases, and they don’t think about the money that they will eventually have to pay back. These are the same people that must resort to literally freezing their credit cards. For them, it is best to not borrow and save, since they do not have the willpower to handle debt responsibly.

      A smart person (*cough* Ben Stein *cough*) can use their credit card for everyday purchases that should really be paid with cash (food, underwear) and pay off their ENTIRE debt, so interest doesn’t matter. These are the type of people credit card companies hate because they do not make money off of them. This is a smart thing do to because not only can they analyze their budgets, but they earn points and the warranty protection that the card provides, as well as safe guarding their checking account from unauthorized access.

      My Point? Yes, I agree, HAVING DEBT CAN BE BENEFICIAL FOR THE CONSUMER. But it needs to be done smartly.

      • ceilingFANBOY says:

        @goodywitch: Your explanation contradicts your initial response. You are agreeing that paying interest is a good thing, but then you call people who use their credit cards idiots unless they pay them off immediately so that they don’t have to pay interest.

        • goodywitch says:

          @ceilingFANBOY: No, it’s not contradictory. And I didn’t call people who use credit cards idiots, I called MOST PEOPLE idiots, there’s a difference =P

          People who pay interest on everyday items are silly, because it’s a recurring cost. You’re paying interest on something that you will have to pay again, essentially paying more overall for those items. These types of people should not use credit cards, because they don’t have self control.

          Debt for large items that are not a recurring cost (fridge, car, washing machine), make sense because it’ll take time to save to get them, and you may as well use them in the meantime. THIS is the part of the consumer cycle that the original commenter was talking about. These people use debt responsibly.

          You can use credit cards to pay for everyday items if you pay them off in full, to not incur the interest and still have the benefits. These people don’t even have debt, they’re just using a credit card in lieu of cash.

          • mythago says:

            @goodywitch: That makes no sense at all. Instead of borrowing $500 to buy a fridge and paying interest on that purchase, you can save that money and EARN interest on it, then buy the fridge outright. It’s actually less silly to pay for, say, a CD or a pizza with a credit card, since smaller amounts are easy to pay off quicker (thus incurring no interest charge).

            Cars and houses are very large expenditures; that’s why you use credit, because not too many people can save up $250K easily. But really, a washing machine?

            • goodywitch says:

              @mythago: RE: paying off CD/pizza, see last paragraph about paying off the ENTIRE BILL. You wouldn’t pay an extra 10% for that would you? Because you’re doing that when you pay minimum balance for a credit card, instead of paying in full. If you’re using credit cards instead of cash, and actually pay back the bill in full, there’s no issue. We agree on this point.

              And you get my point about making large purchases on credit, for this we also agree. You hate my example, which is OK, but not my point.

              As for the issue of my example, I’ll tell you why I chose this:

              My parents rent their other house, and they aren’t obligated to provide a fridge/stove/washer/dryer. When the new tenants came, they had to purchase appliances quickly. Do you advocate that they eat fast food or pay a lot to a restaurant, or that they purchase the fridge/stove now on credit while they save via eating at home?

            • Miguel Valdespino says:

              @mythago: Yes, but if you don’t have a fridge to begin with, then you have the added inconvenience of having to shop much more often, buying ice, etc. I would rather have a reasonable amount of debt and have a working fridge. Of course I wouldn’t buy the high-end fancy bells-and-whistles fridge on debt. Just a good quality basic model.

            • dveight says:

              @mythago: So what happens when your car breaks down and you need to get it fixed? Should I save that money and EARN interest on it till I can pay the repair outright? Don’t think so.

              See, the different about what goodywitch is talking about and what you are taking about it is “Best Case Senario” vs reality. I see and understand what goodywitch is talking about, and it all comes down to living within your means.

              • Traveshamockery says:

                @dveight: I’ll possibly be criticized for saying this, but everyone needs to have an emergency fund. People who have emergency funds don’t have to run up their credit card to pay for car repairs of unforseen expenses.

                Does having an emergency fund require finding extra money to fund it? Yes.
                Does having an emergency fund require planning? Yes.
                Does having an emergency fund require discipline? Yes.
                Are these three things unrealistic for most Americans? No.

                The value of an emergency fund is such that I feel no one can afford to be without one. Using high interest debt to pay for emergencies is a one-way ticket to the poor house.

                Folks can’t hit the “reset” button and go back and change their past behaviors, but people should stop making excuses and find a way to build a cash reserve, or resign themselves to a life of debt.

                • dveight says:

                  @InfiniTrent: No, I’m not going to critize you on the emergency fund issue, I wholehearted agree with you, and I have one my self (enough for the next 7 months even if I gets laid off today). I was trying to point out there are times that paying interest makes sense, just as AliyaBabasaur have pointed out. Goodywitch does make some valid points.

                  As for her 10% model, I don’t think she was actually talking about anything solid, just pointing out an example similar to AliyaBabasaur.

                  I really don’t have time to write a novel on how I feel about debt/interest/economy, but when it comes down to it, people need to learn to live within their means.

          • Firethorn says:

            @goodywitch: I think I’ll be more specific.

            About the worst usage of credit: Joe Blow goes to the store and buys a 54″ Plasma TV to replace his functional 32″ TV. He then makes minimum payments on the 21% interest card for years.
            About the best usage of credit: Joe Plumber, striking out on his own after his employer decides to retire(laying everybody off), secures a loan at 5% in order to purchase a truck to haul supplies and tools around with, and a 6% loan to pick up the tools he didn’t previously have, enabling him to take contracting jobs of his own, more than making enough to pay off the loans while making a good income for his time.

            Blow – unnessesary purchase, bad terms, etc…
            Plumber – purchases lead to ability to collect more income, easily more than the loan.

            In between, but tending towards the good side – Purchasing a house with a loan because between the interest deductions and not having to pay a rentee a profit, it’s cheaper and you end up with equity vs ending up only with receipts as with renting.

      • snowburnt says:

        @goodywitch: Also, every time you use your credit card they make a fee. They’re not making as much money as if you were paying interest on a large amount of money but if you use your card a lot then they’ll be making a good amount of money

      • berky2755 says:

        @goodywitch:

        “By paying the debt, you’re not making use of the money that can earn you interest. You can take out a loan for say 7%, and place that money in a place where it can earn you 10%, so it’s a 3% interest that you’re gaining, as opposed to letting the money sit there and think, well, at least I own my house free and clear”

        Not everyone agrees with this. Do a search and you’ll see what I mean. However, the money you put extra on your mortgage is *guaranteed* 7% return, whereas no investments exists that will guarantee 10% ROI. In fact, in today’s market, chances are that number will be negative… like my 401k.

      • Traveshamockery says:

        @goodywitch: I am interested in this investment you speak of, which returns a guaranteed 10% in the year 2009, and would be interested in subscribing to your newsletter.

        Get real, folks – debt payoff is the investment of choice right now. Pay off debt for a guaranteed return on investment and improved liquidity for when the market begins its recovery.

        • Miguel Valdespino says:

          @InfiniTrent: Actually, the smart people are buying into the market now. You are guaranteed to get a low price. As long as you don’t invest in a company that folds, you will end up making money. If you do invest in a company that folds, at least you didn’t lose as much.

          • Traveshamockery says:

            @Miguel Valdespino: I understand…for me, the guaranteed return of debt payoff and the better cashflow flexibility that will yield in the future makes the most sense.

            I’m still investing in my 401(k) while the market’s doing its gyrations. I’m all about stocks on sale.

        • Ingram81 says:

          @InfiniTrent: Actually maybe my office mates and myself have been quite lucky, but we have been doing our own investments and have been on average over 10% on the stock market.

      • Miguel Valdespino says:

        @goodywitch: Actually they make money on the pay-it-off every month types. They make it from the fees they charge the merchant. I know a lot of points-playas who put every purchase on their cards. It works out to nearly a hundred transactions a month. And the credit card companies get a slice of each one.
        .
        Back to the debt issue. Properly managed debt is not bad. Few people would own a house or car without debt. The trick is to use it wisely. When you have credit card debt, pay more than the minimum payment and pay often. I’ve used the pay-twice a month moethod of paying doen a credit card and I was surprised how fast it works. (I did it not because of the interest, but so that I would not spend the money that was sitting around in my account)

      • Firethorn says:

        @goodywitch: These are the type of people credit card companies hate because they do not make money off of them.

        Actually, from looking at the way I’m treated, and I’m a ‘pay the bill in full every month’, they DO love me and people like me.

        They get that 2-3% fee every time I swipe my card, and don’t really have to worry about me going and declaring bankruptcy, losing them their principal in additional to all the interest they’d get.

        It might not be the 8-26% they can get from some other customers, but the reduction in having to write off money is well worth it. Consider a 2% fee. That’s 2% per transaction, 12 times a year for my average balance. If it’s $1k, that’s $240 a year in fees for them I generate. 24% effective return is right in line with the higher interest rates of somebody who doesn’t pay off their bills and merely pays the minimum payment.

        • goodywitch says:

          @Firethorn: I completely forgot about merchant fees. I was thinking of a PBS special I saw about credit card debt when I said credit card companies hate people who pay in full.

          BEN STEIN: The credit card companies hate people like me, who pay off our bills every month. And I know that because I ran into a fellow I went to high school with on the street, and he told me he worked for a credit card company. And I told him about how much I use credit cards and how I pay them off every month, and he said, “Oh, we hate you. We hate you guys. We call you deadbeats.”

          NARRATOR: “Deadbeats,” in the upside-down world of the credit card business, are the people like Ben Stein, who pay off their bills on time. The industry’s best customers are the 90 million Americans who don’t pay off their credit card debt. They’re called the “revolvers.”

          [www.pbs.org]

          @InfiniTrent: Yes, yes, an emergency fund is ideal. No one is going to argue about that. But some don’t have a large emergency fund, such as as people whose homes have been foreclosed, people who are just starting out, or recent immigrants. They must rely on a credit card temporarily go get through emergencies.

          @InfiniTrent: Why are people caught up with details and not the POINT? referring to the 10% of which you mock. AliyaBabasaur had a much better example.

    • ceilingFANBOY says:

      @Ronin-Democrat: There is nothing wrong with paying interest…other than the fact that you are paying more than you spent. Why would you not try to pay off your bills in a way that minimizes interest? If you want to wait until the last day possible to pay off your bill so that you can accrue more interest than you would have paid if you paid off your bill right away, go ahead; I am going to continue paying as much as I possibly can on my credit card with each pay check and minimizing my interest.

    • floraposte says:

      @Ronin-Democrat: Of course cash back has value. It just isn’t value worth considering if you’re retaining a balance on which you have to pay interest. If you don’t pay interest, you can save yourself a worthwhile little wad of money by working the cashback system.

      • Ingram81 says:

        @floraposte: The cashback I got last year from my Master Card got translated into a new 24″ Samsung Monitor. So anyone who dares to say cashback is worthless can come over and drool at my new free monitor.

    • TouchMyMonkey says:

      @Addicted To Chocohol: You do know what a ronin is, don’t you?

      I have no idea why this guy is banging out such utter nonsense, but not paying interest is WAY better than paying interest. I bet this Ronin-Democrat guy lights stacks of $100 bills on fire because he likes watching them burn. That doesn’t mean we have to.

    • snowburnt says:

      @Ronin-Democrat: the only time it’s a good thing to pay interest is if it’s tax deductible. with credit cards it’s not

      • Traveshamockery says:

        @snowburnt:

        the only time it’s a good thing to pay interest is if it’s tax deductible. with credit cards it’s not

        Wrong….not even tax deductible interest (like on a mortgage) offsets the full cost of the interest paid. Yes, you may go from an effective rate of 6.0 to 4.5, but you’re STILL paying interest.

        It’s sometimes acceptable to pay interest, but it should never be characterized as a good thing.

        • AliyaBabasaur says:

          @InfiniTrent: “It’s sometimes acceptable to pay interest, but it should never be characterized as a good thing.”

          Wrong. Paying interest can be a very good thing. Paying interest is a good thing as long as you are making more money on your debt than you pay in interest. My car is financed at 1%. Even though I had enough cash to pay for it in full, I accepted the financing and kept the remaining money in CDs of various durations earning between 5.5 and 6.75% APY.

          • Traveshamockery says:

            @AliyaBabasaur: Shame on me for speaking in absolutes…I should have said “should almost never be characterized as a good thing”.

            You make a good point. I’m aware of this approach, but I was primarily addressing the idea that there’s “good interest”. Some people specifically say you shouldn’t pay off your mortgage because you’ll lose the interest deduction…basically claiming you should spend $10k a year to save $2.5k. That’s foolishness, unless you’re doing something more profitable with the money in the meantime (like what you describe).

    • berribrand says:

      @Ronin-Democrat: I think cash back definitely has value. Why not charge something you have to buy (like groceries and gas) on a card and then get a little bit back in return. Hey, 1% to 5% (typical going rates) is small, but it’s something. Of course, some cards only give you cash back only if you are paying it off in full every month.

      • Traveshamockery says:

        @berribrand: Agreed. I’ll take something for nothing, combined with free use of somebody else’s money for a month.

        I’ve earned hundreds in cashback on my AMEX Blue Cash this year by simply charging almost every purchase to it.

        And now, if only my mortgage holder would take AMEX…

    • Adam2010 says:

      @Ronin-Democrat: WOW, The power of ignorance. A few years ago one of my engineering professors was instructing a capital budgeting class and he said, “…interest, those who understand it collect it [interest], those who don’t understand it, pay it [interest]…” I’ve got a fixed 6 point something rate on my Amex and still don’t use it, I’d rather pay cash if possible. Let’s say someone is earning a few percent of a savings account CD, etc…. if they are paying more that the interest rate that they are getting on their savings, they are costing themselves a bunch of money, kinda negates the point of saving. The math is simple here folks, interest rates are either working for you or against you, regardless of the use. Thanks for the interesting viewpoint :D

  3. Featherstonehaugh says:

    How about not carrying a balance in the first place? Problem solved.

    • humphrmi says:

      @Featherstonehaugh: Here’s a news flash. People who can’t pay off their credit cards balances in one month read this blog too.

      • Traveshamockery says:

        @humphrmi:

        Here’s a news flash. People who spend too much and can’t pay off their credit cards balances in one month read this blog too.

        Fixed that for you.

        Yes, I know, some people have medical bills, blah blah blah, but 90%+ of people who carry a balance overspend, period.

    • ceilingFANBOY says:

      @Featherstonehaugh: The school semester just started which means I just had to buy books and I have extremely limited availability during school. I can’t exactly have no balance on my credit card right now. Until the end of the semester, my money in is going to roughly equal my money out so I’m going to have to just ride things out until the end of the semester and make payments as early as I can to keep my balance as low as possible until the semester ends and I get more hours and have less expenses.

    • microcars says:

      @Featherstonehaugh: “How about not carrying a balance in the first place? Problem solved.”

      AND then you have more time to go post self-righteous comments on Blogs!
      its a Win-Win!

    • MostlyHarmless says:

      @Featherstonehaugh: Good advice, but dished out in a very dickish manner.

      Now there ARE people who buy stuff they dont need, and sometimes dont even use with credit, and they cant / dont always pay the full amount each statement.

      This would work for them.

    • Tiber says:

      @Featherstonehaugh: @InfiniTrent: Can we please put this whole “Don’t carry a balance” thing on the list of disemvowel-able statements already? It’s close enough to blaming the consumer, it’s more stating the obvious than good advice, and it annoys everyone, myself included.

      • Traveshamockery says:

        @Tiber: My post didn’t say “don’t carry a balance, idiot”, it said that people who carry a balance in general don’t need a tricky way to snowball their debt away, they need to change their spending habits.

        Sorry to annoy you, but with some posters claiming that carrying debt is inherently a good thing, I think it makes sense to make some “no duh” comments on balance.

        • Tiber says:

          @InfiniTrent: I’m pretty sure many people who overspend or impulse buy are aware of their bad habit. If you happen to know a good way to help them kick their bad habit, that would be informative. In many cases though, this whole don’t overspend/don’t carry a balance/etc. thing is like offering the sage advice, “Don’t screw up!”

          And Ronin never said that carrying debt was good, he said paying interest is not necessarily bad. And in that he is correct. He never said you should want to do it, and he even recommends finding the lowest interest rate. However, there are times when borrowing money is beneficial, such as buying a home instead of renting.

    • flyromeo3 says:

      @Featherstonehaugh:

      what a dumb comment!
      No balance = no credit history / will get raped in the ass with higher mortage or car loans.
      How about paying the full balance each month.

    • berribrand says:

      @Featherstonehaugh: Yes, tell that to a college student.

      Most college kids come out in debt, and we’re not just talking student loans. I did, but managed to get out of debt by getting smart about paying things back, controlling spending, and using credit card benefits where possible (like cards that offer cash back). Why not charge food and gas (life’s necessities) on a card and get some cash back in return? One of my cards takes the cash back earned in the previous month and then applies it to the next month’s balance.

  4. HawkWolf says:

    Note that some credit cards have limits on how many payments you can make per month. With any of mine, it’s 2. So you may not want to literally pay whenever you have the money.

    • ceilingFANBOY says:

      @HawkWolf: That gets so annoying with my Shell card. It won’t let me make more than one payment per two week period. Right now I am still in the one year interest free period, but I know that what they call a security device is really just a way of making sure that I don’t go home and pay off my card whenever I get gas.

    • SadSam says:

      @HawkWolf:

      When we were paying off all our debt (except for the mortgage) a couple of years ago we ran into this same problem. We were working the Dave Ramsey debt snowball and I was trying to speed up the process by snowflaking (making multiple payments during the month, basically any time we had ‘extra’ money). Citbank would only allow two payments a month if I processed the auto payments on the Citi site (i.e. Citi pulled the money from my bank account). But, I figured out I could make as many payments as I wanted online if I did the auto pay from my Wachovia checking account (i.e. I pushed the money to Citi from my bank account).

      If you want to make multiple online payments each month you may want to check into changing how you do your on-line payment. Make sure your bank doesn’t charge you for bill pay.

      Now that we have all our debt paid off (except mortgage debt) we keep our credit card debt under control by not using them (although we do have credit for when we travel or make a big purchase that we want extra protection on).

      • jenl1625 says:

        @SadSam: I can only pay online twice per month *using the card’s website*, but I can use my bank’s billpay to send as many payments as I want, as far as I can tell.

  5. jamesdenver says:

    “Don’t carry a balance” – Yeah no shit. That holier than tho answer was discussed in another recent thread – and I’m probably said it too.

    However not everyone is perfect, and lots of people have balances. Every tip for getting out of debt faster should be met with “Don’t carry a balance”

    It’s fairly obvious to the people that need the help. (been there and done paid it off.)

  6. GC says:

    29 percent on a credit card? Isn’t that pretty redonk?

  7. balthisar says:

    Wow! Talk about blowing things out of proportion to make a point! Who really has 29% interest rate credit cards that’s not already maxed out on their starter/loser/deadbeat card?

    • Coles_Law says:

      @balthisar: Someone who missed a payment, or got nailed by universal default, back when all the cool companies were doing it. I’ll agree though-most people with decent credit can do better.

    • catastrophegirl chooses not to fly says:

      @balthisar: the people who decided that using the card to buy life saving medications and paying the interest until they could pay it off would be saving money over missed work and repeated hospital visits.

    • hegemonyhog says:

      @balthisar: Me.

      It’s the beauty of having a Chase card on which I was erroneously charged with a late fee because they transposed two numbers on my bank account. They took away the late fee, the overlimit fee and rush processing fee…but kept the increased APR (from 13% to 29%) and refuse to take it back.

      I never use the card, but it’s more common than you would think – the slightest slip-up on anyone’s part, and they send the interest rate skyrocketing. Then they lower the limit. Then you’re just cut off completely.

      Credit’s great.

    • larrymac808 says:

      @balthisar: 29% does happen, but the example could have been more realistic. 19.9% would have been just as good. The example doesn’t illustrate anything about making additional payments though, so I’m really not sure why it’s even there.

  8. Anonymous says:

    This idea of strategically timing card payments caught my interest recently. I always pay off my balance each month, but noticed that the bank reports my balance to the credit bureaus immediatly after my monthly bill, before I’ve had a chance to pay it.

    I wonder, would it make sense to pay my card down a week early, so that the bank reports a lower balance and my balance-to-limit ratio on each card is lower on my credit report? Would this be advantageous?

    • Roeroica says:

      @MarioVixx: I think it really just becomes an issue when the balance is greater than 50% of the limit and even then, I see people with that reason code on their credit who still have 740+ scores.

    • 310Drew says:

      @MarioVixx: Paying your bill early may help you show no balances on your credit report. The problem is not all credit card companies send the information at the same time every month. some do it after the closing date, some do it the day after the bill is due, etc.

      If they play around with the dates they update it, which by law is within 60 days, they can substantially reduce the number of times per year they update everyones information which I am sure is a cost saver for the bank.

    • berribrand says:

      @MarioVixx: I would agree that is depends on your balance load. If it’s a good portion of the card’s overall limit, then yes, it might be good to pay it down. But if the charges amount to like 25% or less of the card’s limit, I would not bother. In fact, now that I pay off my cards every month, I pay them near the due date (electronic payments online) just so I get a bit more interest benefit (I tuck away most of my day-to-day money in high interest savings and then transfer to checking when I need to pay something relatively big).

  9. IT-Chick says:

    Pretty interesting to say “don’t carry a balance” when:

    1) Americans carry approximately $5,800 in credit card debt from month to month. If they make minimum payments on this credit card debt, it would take 30 years to pay off and cost them an additional $15,000.
    2) Over 40% of all United States families spend more than they earn.
    3) The average family has 13 credit cards or other types of payment cards.
    4) 92% of United States families spend their disposable income on debt payments.
    (taken from [www.nationaldebtassistance.com])

    So wow, you really are special to not be among those, in fact, you are a minority. Feel good about yourself, and feel even better putting others down. You deserve that soap box.

    • Eyebrows McGee (now with double the baby!) says:

      @IT-Chick: “The average family has 13 credit cards or other types of payment cards.”

      Holy freaking crap!

      I feel embarrassed about having THREE. (Marital AmEx as main card. Marital MC for backup. Personal Visa for charging birthday presents for the hubster. And sometimes shoes that he doesn’t need to know about.) I feel like three is so many I have to justify it!

      (And no, I don’t carry a debit or ATM card.)

      • ceilingFANBOY says:

        @Eyebrows McGee: Same here. I have my regular credit card, my gas card since it gives me a discount at the gas station that is always the cheapest around my house anyway, a Wal-Mart card that only gets used if I have to make a purchase over $250 at Wal-Mart so I get 0 interest (I always pay that off before the end of the 0 interest), and my debit card. Beyond that, I don’t really see a reason to have more cards other than to increase my total amount that I can borrow. About the only other card I can imagine me getting right now is an Amazon card since I do a lot of shopping off of their, but I don’t remember there being that many benefits to getting an Amazon card.

        • oneandone says:

          @ceilingFANBOY: Reasons to have more than 1 card:

          - when Citibank randomly decides to raise your purchase APR rate, for reasons they will not disclose nor negotiate. (Perhaps not a problem if you don’t carry a balance but every once in a while I need extremely expensive plane tickets and will need more than 1 month to pay for it).

          - When AmEx suddenly lowers your credit limit to an amount lower than what you spend on groceries in a weekly trip (thus making the card unusable for many routine purchases)

          - When WaMu suddenly closes your account due to inactivity, making your card useless.

          All 3 happened to me in the past half year, despite a sweet credit score, no delinquincies, etc. For reasons beyond my control, several major credit cards/banks decided to reduce my credit (or make it more expensive to use it) and I was happy to have other options instantly availible (discover to the rescue!)

          I thought I had a lot of credit cards (8 visa/mastercard/amex + 3 store charge cards that I never use. No gas cards). Most are inactive and were very helpful in their 0% introductory rate days way back. But it’s nice having them around, as I’m now learning.

          More responsible friends with only 1 or 2 cards have fewer options when their issuer starts acting up.

      • Ingram81 says:

        @Eyebrows McGee: “And sometimes shoes that he doesn’t need to know about.)”

        I get concerned about statements like this from married women while Im in the process of planning a wedding…

        What other secrets do married couples keep from each other?

        • Eyebrows McGee (now with double the baby!) says:

          @Ingram81: LOL. I slightly kid.

          I don’t tell him when I throw out gladware that is too gnarly to cope with cleaning (and I swear to God, every married woman I know does this!) because he always complains what a waste it is … but doesn’t offer to clean it.

          We generally agree on spending-money guidelines — how much we can each spend “for fun,” at what point we need to check with each other before buying, what’s a reasonable amount to spend on X, etc. The issue is just that sometimes I want to buy something that’s within my “fun money” allotment but will make him go “OMG!!!11!!” because he’s still getting over jeans costing more than $15. I just prefer we not spend three days going, “You spent WHAT on a pair of shoes? Do they FLY?” The same way he doesn’t tell me what he spends on certain hobby supplies because I spend three days going, “SERIOUSLY? SERIOUSLY?” As long as it’s within the “allowance,” it’s not so much “hiding things” as avoiding bickering.

          As long as you’re communicating about the big things, sometimes you don’t need to share the little things (“I donated that hideous sweater your sister gave me four years that I’ve never worn!”). One of the best pieces of advice I ever got about marriage was, “Sometimes you need to stop talking.” Sometimes you’re only “communicating” to be mean, or something you know you’re going to fight about something stupid, or whatever.

          • oneandone says:

            @Eyebrows McGee: This is very helpful advice, and I like the way your system is structured. Gives me a lot to think about as BF and I start contemplating merging finances. I’m definitely interested in sharing responsibilities while avoiding “how can anyone spend that much money at CVS?? Do they sell gold bars there??” and “Can’t you frame your jerseys in something more reasonable?”

            I like the allowance idea. Making a mental note of it.

    • Collie says:

      @IT-Chick: I am one of those, and I am proud of it, maybe if more people were like us we would not be in the toilet right now. Those are the statistics should be a wake up call for people, but it’s like smoking, you know it is killing you, but you can’t quit. It is sad that we have to have instant gratification and have it now, instead of saving for it.

      • Cat_In_A_Hat says:

        @Collie: I’m with Collie. I also carry no credit card debt on 3 cards. I’m very proud to not have excess debt because of uselss purchases that will end up costing you triple the price when paid over decades. Just because the average Americans carry such large amounts of debts and have way more credit card accounts than necessary, doesn’t make it okay and people need to realize that if you can’t afford something now, 30 days from now, or a year from now, don’t buy it!

        • Collie says:

          @Cat_In_A_Hat: I knew I was weird, but glad I am not the only one. I am one of the unfortunates that got laid off and since I have no debt other than my house, it was not as devastating as it could have been. It has allowed me to readjust my career path, and now I have a new job (making less money). Debt is the problem with our country, every body says we need to spend, which I agree with to a point, but we need to spend cash, not credit. That is what got us into this mess.

    • henwy says:

      @IT-Chick:

      Cool beans. I really do feel sorta superior now hearing about all the morons out there. It’s pretty amazing too given that I probably make less money right now than most of those idiots. Maybe it’s time we start pointing out more often how they’re being stupid and just shame them out of their habits.

      • mythago says:

        @henwy: Yes, by all means, feel very superior that you don’t have medical bills and haven’t suffered through losing your job or health insurance. Clearly only morons get cancer. If you just shame people enough, they won’t ever get laid off, either.

        /eyeroll

        • Traveshamockery says:

          @mythago:

          Yes, by all means, feel very superior that you don’t have medical bills and haven’t suffered through losing your job or health insurance. Clearly only morons get cancer. If you just shame people enough, they won’t ever get laid off, either.

          Pretending that most people who have credit card debt only have it because of layoffs or medical expenses just adds to the victim mentality of many Americans. Do these people eat out more than once a week? Do they have cable TV? How about internet at their home? Do they have a relatively new car with a car payment?

          The answer to those questions is most often “yes”. Overspending is the root of America’s debt problem, from our national deficit to our underwater homeowners.

          People who save and don’t overspend aren’t as vulnerable to layoffs, medical problems, or other emergencies. We make the bed we sleep in in 90% of cases. Crap happens, but shouldn’t be used as an excuse for irresponsible behavior.

          • failurate says:

            @InfiniTrent: I think quite a few people are missing the point of these debt management blogs and are instead using them as a bandstand to toot their own horn.
            Yes, we all know that paying interest is no good. Yes, we are all very proud of you for not paying interest. Now, the point of the post is that quite a few of us are looking for ways to join your wonderful club. So, get your self-back patting and venom spitting out of your system, and let us move on.

            • Traveshamockery says:

              @failurate: I missed the “back-patting, venom-spewing” part of my post. Thanks for the hyperbole. Perhaps my message was offensive to you, and if so, I’m sorry, but I wasn’t attempting to attack anyone in particular, just the victim mentality of many who are in debt.

              I think this is a great article, and the principles it teaches could be applied to more “acceptable” types of credit, such as a mortgage or student loan (both of which apply to me)

              The main message in my post was that people typically get into debt because of inadequate planning and overspending. People often stay in debt because they’re not willing to make temporary lifestyle sacrifices to attack their debt with ferocity.

              People often blame their random car repair or medical bill for keeping them in debt, when in reality, if they’d just drop their $60 a month cell phone, their $80 cable bill, and save $25 a week by packing a lunch instead of eating out, they’d be out of debt and would have an emergency fund to take care of life’s unplanned events.

              This isn’t a “debt management blog”, it’s a consumer blog, and just like we criticize consumers who get scammed by Cash4Gold.com, we criticize people who make bad decisions and put themselves in financial hardship.

              It’s nothing personal, just the facts.

              • failurate says:

                @InfiniTrent: I should have said, “debt managment article on a consumer blog”. But yeah, thanks for missing the point and continuing to do what you do.

                • Traveshamockery says:

                  @failurate: What particular statements do you take issue with? I’d be glad to discuss them with you. Perhaps we could learn something from one another, or perhaps come to a mutual undestanding. Or are you simply offended because my comments rail against behaviors that resemble you? Again, what do you specifically disagree with in my statements?

                  Thanks for ignoring the entirety of my post and continuing your ad hominem attacks. It’s a great way to avoid actual discussion.

          • Ingram81 says:

            @InfiniTrent: Oh god my stomach is hurting so much…the only cure is…another 52″ plasma in the garage….oooooh the pain.

            While I think mythago has a point, and I wont deny anyone the right to medical bills and other externalizations, I think the OVERWHELMINGLY VAST majority of credit card debt that exists in this country is deffinitely not due to medical issues, but rather issues of self-entitlement. (A psychological issue, which could result in medical bills that could not be paid…)

            Wait I think I just completely agreed with mythago. Buying that 52″ plasma and a new set of spinners for my Caddy is just what I need to treat my mental condition of self-entitlement…cause its a medical expense.

    • Featherstonehaugh says:

      Carrying a balance is not a good idea, not matter what anyone tells you. Once you pay down your debt, maybe consider not getting in over your head anymore. Credit cards can be wonderful things when used responsibly. When paid off in time, you are getting a short-term interest free loan. If you don’t pay them off, you get screwed. You can’t say you weren’t warned.

    • Ingram81 says:

      @IT-Chick: Honestly, that is one of the best written and informative posts Ive seen in a while. Pointing out facts and everything.

      Sadly those sad facts make me sad.

  10. PCJustin says:

    Just a technicality, but compounding interest on a daily basis is not the definition of Average Daily Balance. Average Daily Balance is the method for determining on what balance interest will be charged when interest is compounded monthly. If interest is compounded daily, then there is no “average”.. it is simply compounded based on the actual balance for that day.

  11. Anonymous says:

    Also, remember that in our modern economy debt is currency. Each of us burying ourselves in debt helps to bring our economy out of deflation.

    Do your part and buy more stuff.

  12. Meathamper says:

    Just use a debit card. Simple/

    • Collie says:

      @Addicted To Chocohol: Exactly. Then you earn the interest instead of the bank. But apperently it’s like telling a drunk to stop drinking.

      • JustThatGuy3 says:

        @Collie:

        Using a debit card earns you _less_ interest than using a credit card (assuming you don’t carry a balance on a credit card).

        If I buy a $500 item today with my debit card, the money disappears from my checking account immediately.

        If I buy a $500 item today with my credit card, my bill won’t come for several weeks, and I have several weeks after that to pay, so the money stays in my checking account, earning interest for another month.

    • goodywitch says:

      @Addicted To Chocohol: And lose the protection credit cards give you, or allow a third party to have direct access to your account to make withdrawals that may/may not have been approved, but are hard to contest? No.

      Ben Stein uses credit cards A LOT, but he PAYS THEM OFF IN FULL so he doesn’t pay interest.

      The key is to not buy crap you can’t afford.

      • say what?! says:

        @goodywitch: exactly! just be a responsible person and spend less money than you earn. Pay the bill in full every month, and there is no problem. The little interest I would earn using a debit card makes it totally worthless to go that route, however, by earning 2x-5x rewards w/ my card, i approach a fairly good return on the money I spend. Plus, I get things like free warranty extensions, travel/rental car insurance, purchase protections, etc. I’ll never give up my cards.

    • Traveshamockery says:

      @Addicted To Chocohol: I’d change that to:

      Just use a rewards credit card like a debit card. Simple.

  13. khiltd says:

    The problem with that is that if you send them money BEFORE they issue a statement, that payment usually doesn’t count toward said statement and you will be hit with a late fee for failing to make the minimum.

    • say what?! says:

      @khiltd: right, but you don’t have to wait for the statement to arrive at your address. your payment will apply the day after (or for some companies, the day of) your statement being generated. It usually takes about a week for the statement to get to you.

    • ceilingFANBOY says:

      @khiltd: That is something that you would have to check with your particular card. The other thing is that if you get paid twice a month, one of those paychecks should come before your due date is up.

    • Coles_Law says:

      @khiltd: True, but your minimum will be less, due to a lower balance. I think the idea was to make one payment for the bill and a second mid-cycle.

  14. danep says:

    If you make your payments in full every month you can also make this work in your favor by doing the opposite of what is advised. If you wait until right before the due date to pay, that’s another 2-3 weeks of interest that you are getting and the credit card company is not :)

    • ceilingFANBOY says:

      @danep: The credit card company still gets interest from you. Even if you pay the card off in full, they collect interest for the 2-3 weeks that you did not pay the card. They just don’t add that amount until some arbitrary date, like the end of the fiscal year.

      • tripnman says:

        @ceilingFANBOY: Not sure about that. I max out three “rewards” cards every month and pay the balance in full on the due date every billing period. Have been for years, and have never been hit with a “catch up” finance or interest charge. Ever. My logic follows danep’s – I make the interest for 30 days, they don’t. Actually, I do the same thing with taxes. I don’t pay the required quarterlies because the interest I make by sitting on the money is higher than the penalty they assess. Well, it was, until all the banks dropped their rates to fractions of nothing. Hmmm, guess I should rethink those quarterlies…

      • JustThatGuy3 says:

        @ceilingFANBOY:

        Wrong. If you pay your card off in full by the due date, you don’t pay a penny of interest.

      • bumpducks says:

        @ceilingFANBOY: if you pay your balance off in full by the due date, they do NOT charge you interest. This is part of the grace period. HOWEVER, if you are one day late or one penny short, they can nail you with interest.

        • FlyersFan says:

          @bumpducks:
          I just transfered a balance in full to another card and the original BoA card charged me $15 because I transfered the balance to another card.

          Im convinced CC companies are evil.

  15. Anonymous says:

    CC companies are trying to collect as much interest from their current customers as possible. I usually pay off my discover card every month, but last month I did not pay 150.00 of my balance as I was expecting a refund for the merchandise. The statement cut off for the current month and I was hit with a 20.00 interest charge. I couldn’t figure out why. Turns out my agreement had changed and I forgot since the was the first balance I carried over in a couple of years. If I did not pay my entire balance on the previous statement, they could charge me interest on the previous balance and the balance on the current statement. I charged about 800.00 on the current statement so I got to pay interest on all that too. I have now taken the Discover out of my wallet.

  16. 12-Inch Idongivafuck Sandwich says:

    I have started paying my credit cards 2x a month (in accordance with payday). I started using the snowball spreadsheet so I know how much to pay back to each card every month, and my checking account company has options for paying automatically twice a month.

    Seems to be working out well for me, and I’ll pay even less interest than the spreadsheet calculates.

  17. oregongal says:

    We dont have CC’s but used this same principle to pay off our car. Final payment will be sent next week, 6 months early and the money we used to make the payments is going to savings. Havent missed it for 3 1/2 years, wont miss it for next ??? more :)

  18. ceilingFANBOY says:

    This advise is sort of like buying gas every day whenever gas prices are going up and as infrequently as possible when gas is going down.

  19. OolongCaloophid says:

    I find it amusing that Lifehacker linked to this article.

  20. vidcredit says:

    Last year, I started advocating paying off credit cards 2x per month – every payday. This tactic is not only great for reducing the interest payments you make but it also decreases the amount of your credit limit used and that will increase your credit score.

    The easy tactic is this 2x method, but you can also do a more advanced tactic of watching your closing dates and making payments before that date to decrease the amounts reported to the credit bureaus. This is a way to combat the lowering of limits the card issuers are doing now.

    If you are a homeowner with a fixed mortgage, you want to do the same thing and make payments every 2 weeks versus once per month. This can mean knocking off several years off your mortgage.

    Compounding can be your enemy or your friend.

  21. chrisjames says:

    This advice is a little reckless. If you pay too early, the payment won’t be counted for the upcoming bill, depending on where it falls in the current billing cycle. Sometimes, if you pay before the current bill is posted, maybe even after, they won’t count that payment towards the minimum due.

    I’ve had this happen to me plenty of times. For a while I was paying online two or three times a month. Every time, the first payment wouldn’t count towards minimum due, the rest would. We’ve also had a couple articles here recently on this.

    It’s not as bad as it sounds, unless you’re living paycheck to paycheck and can’t afford to make a second payment just to cover their stupid rules. Paying as early as possible does make a difference, but be aware that there is such a thing as too early.

  22. mythago says:

    I do this as well. Since the credit card is essentially our cushion for medical costs (you’d be surprised how much ISN’T covered, if you haven’t needed a doctor in a while) I need to keep it as empty as possible.

  23. Meikah says:

    This is true! I do this also. Good information, though for those who just got credit cards, or those who forgot how credit cards work.

  24. Thef0rce says:

    I used to believe that not carrying a balance on my credit card would give me a good credit rating, but that’s actually not the case. Companies only report good behaviour to the creditors when you’re actually borrowing money, i.e, not paying off your credit card in full each month.

    Besides, why have a credit card and use it like a debit card? Apart from the additional protection it offers for online payment and fraud.

    • Firethorn says:

      @Thef0rce: Discover reports my average balance to the CC companies, so it’s been helping my credit for years, but I pay it off in full every month so haven’t paid any interest. My average balance on it is somewhere around a thousand. I never actually hit zero because I don’t pay until just before the due date. I use electronic payments, so I don’t have to worry about the mail.

      I not only use it for the additional protection, but to be using their money until my paycheck comes in. That’s an extra thousand earning interest in my investments over keeping it in my bank account to cover debit charges. Oh, and it’s like a 1-5% discount on everything. Though I’m getting another card, 2% + 3 cents off gasoline at the gas station is enough better I’m going to try it.

  25. DropBearCharlie says:

    Paying twice a month is a bad idea, especially if you normally “pay in full” each month.

    I did this once, and it seems to treat it as a partial/minimum payment so starts charging interest on some/all of it (not sure if its the charges for the rest of the month, all charges, or what). Combine this with double cycle billing and my “pay partially early” plan wound up costing me a bunch of interest i wouldnt have had to pay, had i just waited until the bill showed up.

    That and the CC billing is screwy enough, when you start deviating from the normal process it goes screwier.

  26. jimmy37 says:

    The problem with this great idea is that you have to make the minimum payment when you are BILLED. Only then should you pay as soon as possible.

  27. vastrightwing says:

    Not only is paying multiple times per month good for lowering your interest, but it eliminates the nasty late payment fees since no matter when they move the payment date, you’ll never miss it!

  28. pjstevens77 says:

    ….And in other Breaking news the sun came up today

  29. Scott Wishart says:

    We started doing exactly what was mentioned to pay off an old card with a bad rate (after transferring the balance). We are fortunate to get paid bi-weekly, on opposite weeks, so we actually set it up for a weekly payment of exactly 1/4 of our old monthly payment. It even makes budgeting a bit simpler.

    Bonus: four months a year, we send an extra payment and don’t necessarily notice in our budget!

  30. Nicholas McNamara says:

    This person is clueless. The best thing to do is to pay off your balance every month in full. Then, you don’t pay any interest and the points or cash back will actually matter. There is nothing wrong with paying interest if you like giving your money away. If you do have balances, get another card with 0% and do a balance transfer so you won’t have to pay interest (just a small fee for the transfer). CCs are also good to float your money, because $100 today is worth more than $100 next month (except in a deflationary period).
    I highly recommend [ficoforums.myfico.com] who has many people skilled in real advice that is good for your financials. It helped me raise my (highest of the 3)scores from about 520 to 818.

  31. forgottenpassword says:

    I learned about this years ago from clark howard (a consumer advocate radio talk show host). He advised paying every 14 days (or twice a week).

  32. Saboth says:

    I usually make a payment with each paycheck. One for the minimum payment do, then another for about 2x the minimum due.

  33. theblackdog says:

    I’m already doing this now, but it’s on a 0% promo rate since I am using that to pay off all of my credit card debt. Plus it’s easier to make a $300 and then a $200 payment.

  34. Anonymous says:

    I MAKE about $100 a year off credit cards. Take that Capital One!

    Note:
    -I don’t use my CC if I don’t have the cash in my checking/savings to pay.
    -I pay off my statements in full (so I don’t pay interest)

    I avg. about $500 a month on my CC (I get 1.25% cashback) and I get about 2%/yr interest in my ING checking/saving account.

    So here’s the scenario, I spent $500 in January. That $500 is due on Feb. 26th. On cash back I earn $6.25 ($500 * .0125) and on interest I earn $0.83 (2% a year = 0.17% a month.. so 0.17% of $500 is $0.083) So roughly $7 by Feb.1st. However! The money is due on Feb. 26th. So that means as my paychecks come into my savings/checkings, I don’t earn interest on only $500 but more.

    Depending on how much I spend/save. I’m able to make more.

  35. Fidencio Gomez says:

    and pay at least 1 dllr more, more “investment” means less interest

  36. Bs Baldwin says:

    Yeah this doesn’t sound quite right. If you pay off your balance every month, you don’t pay interest. If you make payments before your statements end, yeah that will lower the interest because the statement balance will be less.