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How to Save on Credit Card Interest

By John Rasor

Republish: EasyPublish™
Published: 02Jul2009
Word count: 401
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Credit card interest takes the first dollars from every payment you send, so reducing the amount of interest you pay means your debt will be paid faster.

One way to reduce those interest payments is to ask for a lower interest rate, of course. You can also transfer your balances to credit card accounts that charge less to begin with. Many a consumer has gotten in deeper this way - by taking advantage of low promotional rates on balance transfers, only to realize that 3 months later they're paying more interest than ever before.

Fortunately for consumers, the Credit Cardholder's Bill of Rights, which was passed by Congress in May, will assure that any promotional rate remains effective for at least 6 months. But beware, this law doesn't become effective for 9 months.

Putting any extra cash on your outstanding debt is always a good idea, as is continuing to send the same minimum payment even as your balance goes down. You've noticed that each time you make a payment, the minimum shrinks a little. This is a tactic used by the credit card companies to keep you paying interest from year to year.

But here's a little trick to reducing your interest payments even if you don't transfer balances, get the interest rate reduced, or pay more than the minimum each month.

Simply pay the bill sooner. Keep an eye on your account on line. Then pay that credit card bill the day it is posted.

This won't save you hundreds of dollars, but you'll gain, inch by inch. Say you have a balance of $10,000 at 18% - if you consistently pay on day 2 rather than the due date, you'll save $5 per month, or $60 per year. If your interest rate is higher, you'll save even more.

Here's why it works: Your interest is computed on your "average daily balance." Once the statement is prepared, the previous months' interest is added to the balance, so the daily balance is higher and that makes the average higher.

If you pay on the day the statement is generated, the figures going into that average will be reduced by both the amount you've paid on principle and the amount of the interest.

While this doesn't amount to a huge savings, every little bit helps when you're trying to get out of debt - and this plan doesn't cost you even a cent. Look at it like free money.

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