Interest vs payments...

This is sort of a curiosity question more than anything... I am finally to a point in my business where I can sometimes pay the interest that is accruing on my credit cards.

So I just happened to wonder, would it be beneficial to pay that right after it hits, or wait and pay it when the bill is due. Generally it hits about 2 days after I make the payment, so should I just make a second payment, or wait? Is there any usefulness in doing it that way?

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  • Since you're curious, you should realize interest is no different than any other purchase. When you make a payment, you're just paying down debt. That debt might be due to a prior purchase, last month's interest, this month's interest, or even yesterday's purchase. It just doesn't matter how the debt happened. Interest is simply you buying time.

    The more you pay and the sooner you pay the better. If you have more money to put toward the payment, you should just send a bigger payment. Sending a second payment 2 or 3 days later is not as good, unless you receive more money immediately following your payment.

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  • If you are incurring interest, you save interest if you make a payment as soon as money moves into the CC Payment category. That's obviously a pain, so you'll have to find your own blend of hassle and interest saved.

    To quantify it, divide your CC's APR by 5200. That's how much interest you will save per each week that you send it in early. For example, if your CC APR is 21% and you have $1000 sitting in the category but it's not due for another 3 weeks, you save $1000 * 21/5200 = $4 by sending it in now.

    Realistically, I'd suggest you send it in as soon as you budget for it. Sending it before that is obviously not possible (as you haven't received that money yet), and waiting for the sake of waiting is needlessly incurring interest. If you make a large budgeted purchase, consider sending a payment immediately.

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    • dakinemaui Thanks for the thoughts. That's what I was thinking, but I figured it didn't hurt to make sure I wasn't missing something!

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