question about interest and when you pay (relative to due date)

[Anonymous]

Are  you better off (in terms of paying interest) to pay earlier than the due date? In other words, does interest stop accruing on the part of your balance the day that it was paid? Does it matter whether it's 2-cycle or not?

Thanks!

[Anonymous]

bump

[athensguy]

When you pay an amount, that amount won't be calculated into subsequent average daily (or two cycle average daily) balances anymore, and your next statement will have less interest accrual than if you had waited longer to pay. This assumes you are carrying a balance. If you are PIF, it doesn't matter, interest wise, when you pay as long as you pay by the due date.

[Anonymous]

Yes, if you are carrying a balance, interest will stop accruing for that part of your balance on the day that the payment is posted.  This happens because when you make a payment, your balance goes down, and the more days you have in the billing cycle with a lower balance, the lower your average daily balance calculation will be, and therefore the lower your accrued interest.

If you are not carrying a balance from the previous statement cycle, then you can avoid finance charges entirely by paying the balance from the last statement in full by that statement's due date.  In this case, it doesn't matter when the payment is made, as long as it's by the due date.

[Anonymous]

If your terms say that the interest is calculated on the average daily balance, whether it's over one cycle or two, then lowering your balance a few (or several!) days earlier will lower your interest payment.

I think that some form of "average daily balance" isn't an uncommon way to calculate it.