This Credit Card Payment Trick Saves You Money

Credit Card Interest Tip

First Published Date: February 28, 2016
all know it’s in our best interest to pay off credit card balances each month so you don’t get hit by the high interest credit card companies charge you. However, it may not possible for some of us to pay off balances in full. Today, I will like to show you a simple trick that that will save you money if you carry balances.

Credit card companies mainly use two methods to calculate interest. These are average daily balance method and daily balance method. As it sounds, average daily balance is the average of your daily balance for the full billing period. This average is multiplied by the daily interest rate and then multiplied again by the number of days in the billing period.

The daily balance method is much simpler than the average daily balance method, although both methods generate same the interest charge. The daily balance method looks at your interest charge daily for the billing period and adds each day’s interest to get your interest for the month.

So if you look at these methods carefully, you will realize that by paying several times (instead of paying once) on your bill every month when you carry balances, you will save money on interest charges, as paying several times will bring down your daily balances and averages several times for the billing period. Any partial payment will have the effect of lowering the interest you pay.

For example, if you are paying $200 towards your balances once a month, paying $50 in 4 weeks or several times throughout the month will generate less interest. On small balances, this trick may not trigger significant savings, but the savings will be noticeable on higher balances.

Keep in mind that if you are paying balances in full, you don’t need this trick, as you are not paying interest anyways. If you would like to find out more on how your credit card charges interest, read here.