Revolvers: Pay Credit Card Bills Early Online

WHY CARDHOLDERS WANT LONGER GRACE PERIODS

I understand why credit cardholders need and want longer grace periods when they get their bills through the mail and then pay them through the mail. It’s too easy for payments to arrive late.

However, credit card account “revolvers” who carry a credit card balance from month to month are throwing away money when they rely on the mail system and wait until the due date to make a payment.

They are inadvertently giving credit card companies an advantage and themselves a disadvantage.

RECOMMENDATION

My recommendation continues to be: get a free e-mail address from Google, open a bank account that provides free on-line banking, and learn how to use the service because, with computer access in libraries and Internet cafes, not being able to afford a computer is no longer an excuse.

Then, each month, pay your credit card bill as soon as it is issued on-line, regardless of the due date.

What can this mean in practical terms?

AN EXAMPLE OF WASTED MONEY  

I’m going to use a hypothetical example that is easy to work with mathematically.

Let’s say I have a $10,000.00 balance at 24% annual interest. That’s 2% interest accruing on that balance every month month which is about $200.00 per month or $2,400.00 per year.

Let’s use 30 days in the month. $200 divided by 30 equals $6.66 PER DAY in interest.

That may not sound like much. However, over a year it adds up to $2,400.00 assuming that I charge a little, pay off a little, and keep the balance right around $10,000.00. 

Let’s say I have a 30-day interval in which to make my payment. Although it wouldn’t be possible (because it would not give the credit card company time to credit the payment and print the new statement) let’s say my statement is always issued on the 1st and always due by the 30th.

Were I able to pay off this account, then by paying it off on the 1st, I would save $200.00 in interest above and beyond the balance printed on the statement.

Were I to put off the payment until the 15th, I would save $100.00 in interest, but still owe about $100.00 more than I needed to owe, which would come due on my next statement – along with interest on it. 

However, were I to put off the payment until the very last minute so that it’s registered by my credit card company as being made on the 31st then, I would save zero and, instead, owe an extra $200.00 in interest on it the following month – plus interest on that interest.

SUMMARY

Let me be clear: the benefits of paying early are not limited to those who can pay their accounts off in full.

The greatest benefits actually come to those who carry a balance because interest accrues mercilessly every day of the year and mounts up to unbelievable amounts as the years pass. 

While it may not appear to matter when you make your payment when you are carrying a sizeable balance and the difference in interest savings each month seems paltry by comparison, it does matter and cannot help but impact your finances. 

How much it matters – and how much you can save on interest – will depend upon 1) the size of your monthly payments and 2) how long you carry that balance. 

For maximum interest savings, pay as much as you can each month, and pay it immediately (on-line) after your statement is issued on-line. To do anything else is to throw money away that could have been saved or used to better purpose.