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Reader Question: Timing of Credit Card Payments

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Today I received a question from a reader about the timing of credit card payments. He asked, “Is it better to pay credit off right away or wait until the bill is due?”

Assuming you are in the habit of paying off your credit card every month — and therefore you are never charged interest — go ahead and wait. In the mean time, your cash can earn interest at a bank like HSBC Direct. You don’t want to wait until the last minute as the postal service can be somewhat unpredictable. I’d suggest sending the check at least a week in advance of the due date. This may minimize your interest-earning period, but it’s safer than taking the chance of getting charged a fee for a late payment.

The best solution is to pay your bill using an “ACH transfer,” which is basically a bank-to-bank transfer of money, rather than sending a paper check. This is normally the type of processing that takes place when you pay your credit card online from your card issuer’s website.

If you are not in the habit of paying your credit card bill in full each month, then send money in as soon as possible to reduce your average daily balance. Your interest charged each month is based on the credit card’s rate and your average daily balance, so you are better off reducing that number as much and as soon as possible.

Feel free to send me questions by emailing tips at this domain name. I’m not a financial advisor, but if I can help, I will.

Updated March 29, 2011 and originally published June 29, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 2 comments… read them below or add one }

avatar Chris

Sending money as soon as you can to lower your average daily balance is a good idea, but check your credit card terms! Some cards only allow you to make a certain number of payments per billing cycle, so any payment afterwards will be applied to the next statement.

One of my cards has this restriction, only 4 payments a month. I add money to a savings account every time I use the card (I use it exclusively for groceries and gas for cash back rewards) and pay it in full when the bill comes.

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avatar Terry

For people who pay their balance in full –

Chase allows you to set up “automatic payments” where they will do an ACH transfer from your bank account on the day that the bill is due. I’m sure some other banks do something similar.

This allows you to maximize the time that the money sits in your high yield account and you earn interest on the float. You can calculate this as 1.5 months for your due balance, since your spending is probably 50% in the first part of the month, and 50% in the second part of the month, and then you have 1 month to pay the balance due.

I earn about $100 – $150 (via a tax free MM Brokerage account that ACH transfers come from) a year by doing this.

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