When Should I Pay My Credit Card Bill To Avoid Interest?

Paying your credit card bill by the due date is crucial to avoid paying interest charges. With interest rates on credit cards averaging around 16% APR, carrying a balance can get very expensive. So when exactly should you pay your credit card bill to dodge interest fees? Let’s take a closer look

How Credit Card Interest Works

When you don’t pay off your full credit card balance by the due date, interest is charged on the remaining amount. This is called carrying a balance. Here’s a quick rundown of how it works:

• Interest accrues daily on your balance, starting the day a charge posts to your account.

• Your credit card has an Annual Percentage Rate (APR) that determines your interest rate. The national average is around 16% APR.

• Your APR is divided by 365 to get your Daily Periodic Rate (DPR). This is the daily interest charge.

• Interest compounds daily – meaning the interest from one day is added to your balance and accrues interest the next day

• At the end of your billing cycle, all the daily interest charges are totaled and added to your next statement balance as a finance charge.

So interest adds up quick when you carry a balance. Now let’s look at how to avoid paying interest in the first place.

Pay in Full By the Due Date

The simplest way to avoid interest on your credit cards is to pay your full statement balance by the due date each month.

As long as you pay your full balance on time, you get an interest-free grace period on new purchases until your next statement. This grace period is generally 21-25 days.

So say your billing cycle ends on the 30th of each month and your payment is due on the 25th of the following month. As long as you pay your full balance by the 25th, you won’t pay interest on new purchases until after your next statement cuts on the 30th.

By paying in full each month, you can continue charging purchases to your credit card without incurring interest fees. This allows you to enjoy the benefits of credit cards, like rewards and convenience, at no extra cost.

Schedule Payments Before the Due Date

One common mistake is waiting until the actual due date to pay your credit card bill. But it’s smarter to pay a few days or even weeks early.

Here’s why:

• Avoid Forgetting: Scheduling an earlier payment gives you a cushion in case you forget or have an issue come up by the due date.

• More Time to Fix Errors: Paying ahead of time gives you more opportunity to correct any errors or discrepancies on your bill before the due date.

• Lower Average Daily Balance: Since interest is calculated daily, paying mid-cycle lowers the average daily balance used to compute your interest charges.

• Prevent Issues Near Due Date: Paying early helps avoid late fees if there are any last minute issues around your due date, like a lost payment or short-term cash flow problem.

So for the lowest balance accrual, pay your bill as soon as you receive it. For the convenience factor, consider scheduling payments 7-10 days before the due date. This prevents interest while giving you some wiggle room.

Pay Multiple Times Per Month

Another approach is to make multiple smaller payments throughout your billing cycle instead of one large payment at the end.

This minimizes the average daily balance used to calculate your interest charges. The lower the balance, the lower your interest fees will be.

For example, let’s say your statement cycle starts on the 1st of each month and your payment is due on the 30th. You have a $2,000 balance on your card.

If you wait and pay the whole $2,000 on the 30th, you will accrue 29 days worth of interest charges. But if you make two $1,000 payments on the 1st and 15th, you cut the accrued interest in half.

The one downside to this strategy is it requires more active monitoring of your account. You’ll need to log in frequently to make sure your payments are posting correctly. But for those who want to minimize interest, it can be worth the extra effort.

Take Advantage of Grace Periods on Purchases

Many credit cards offer grace periods on new purchases, separate from carried balances. This grace period gives you 20-25 days to pay for new purchases without accruing interest.

Let’s say your billing cycle ends on the 30th and your due date is the 25th. If you have a carried balance, interest will accrue daily on it. But new purchases made between the 1st and 30th won’t start accruing interest until after your next billing cycle starts.

So you can minimize interest by paying off previous statement balances in full, while still making new purchases that earn you a 20-25 day grace period before interest kicks in. Just be sure to pay off those new purchases in full by the following due date.

Pay Down Balances to Regain Grace Period

If you currently have a carried balance on your card, focus on paying that amount down as aggressively as possible first. This will help you regain the interest-free grace period on new purchases.

Here are some tips to knock out credit card balances fast:

• Make payments well above the minimum due to pay down principal faster.

• Ask for a lower interest rate by calling your credit card company.

• Consolidate debts onto a 0% balance transfer card to avoid interest temporarily.

• Shift expenses to a debit card or cash to free up more funds for credit card payments.

• Pick up a side gig like rideshare driving for extra income to put toward balances.

Once you pay off your existing balance in full, you can start making new charges while avoiding interest again. Just be vigilant about paying off new purchases in full going forward.

Consider 0% Introductory APR Offers

If you have a major expense coming up that you won’t be able to pay off in full right away, consider getting a credit card with a 0% intro APR.

Many cards offer 0% interest for 12-18 months on purchases and/or balance transfers. This gives you over a year to pay off the balance without incurring interest.

Just be sure to have a plan to pay off the full balance before the 0% rate expires. If any balance remains after, you’ll start paying upwards of 16% or more in interest. Set up automatic payments to help you knock it out on time.

Submit Payments Before Your Bank’s Cut-Off Time

One last factor that can impact when your payment is credited relates to your bank and processing times.

Many banks have daily cut-off times, such as 2pm PST, by which payments need to be submitted to be counted for that same business day. Payments received after the cutoff will be processed the next business day.

So if your credit card due date falls on a Sunday, you’ll need to submit payment by Friday or Saturday, depending on your bank’s cutoff. This ensures the funds are available by Sunday to be on time.

Check with your individual bank to learn their payment processing deadlines. Submitting payments before the cutoff provides peace of mind and ensures you avoid interest fees.

Set Payment Reminders to Avoid Being Late

With all these factors to consider around payment timing, it’s easy to slip up and risk paying interest. Set up payment reminders as a safeguard.

You can have your credit card company text or email reminders when your bill is ready and due. For an extra cushion, set reminders on your phone calendar 1-2 weeks prior to the due date as a heads up.

Many banks also allow you to set up automatic payments directly from your checking account for the full or minimum amount due. This guarantees your payment is received on time. Just be sure your checking account has sufficient funds.

By taking advantage of reminders and autopay features, you can rest assured your bill is paid on time and interest fees are avoided.

In Summary

Dodging interest on your credit cards simply comes down to developing good payment habits:

• Pay your full statement balance every month before the due date
• Schedule payments 7-10 days early as a buffer
• Make multiple payments per cycle to lower average daily balances
• Take advantage of grace periods on new purchases
• Pay off existing balances aggressively to regain the grace period
• Use 0% intro APR offers temporarily for large purchases
• Submit payments before your bank’s daily cutoff time
• Set up reminders and automatic payments as a backup

Sticking to these simple strategies will ensure you avoid accruing costly credit card interest. Your wallet will thank you.