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up vote 7 down vote favorite

I guess it's more of a psychological thing for me, but once I get my credit card statement I'd rather pay it immediately than wait around for the final due date. Is there any drawback to doing so. I typical do have the cash available to pay when the statement is released - and even if I don't, I usually get it by the time the statement is actually due so I could just pay multiple times.

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6 Answers

up vote 5 down vote accepted

The math depends on your average bill, days before it's due, and interest you'd earn. Say you have a $2000 bill each month. At 1%, there's an annual $20 or 40 cents per week you'd save by delaying the payment. If you pay on line and can hit the due date dead on, no reason to pay sooner. But if you risk the mail being late, the late fee and interest will negate the savings on a hundred months of last minute payments. Hardly worth the risk, IMHO.

Edit - to clarify, the delayed payment with the above numbers saves the 40 cents or about $5/yr. scale it up with higher average balances or with a higher return on your savings account.

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+1. If you keep trying to hit for last day, sooner or later you will end up in a situation where you cannot pay on time [fell sick, travelling, forgot online passwords, etc] .. and the few dollars saved will be less than the penalty you would pay. – Dheer Nov 11 '12 at 2:10
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@Dheer All the websites of the (US) credit cards I have used in the past five years allow one to set up payment (via electronic funds transfer) of the full amount due (or minimum payment due or any other amount) on any date one chooses. The "Make Payment" link even shows the due date of each month's bill, and the days between statement date (or today's date) and due date are shown in a different color for the user's convenience. Each month, I set up payment in full on the due date as soon as I get the email notifying me that the monthly statement is ready on the web site. – Dilip Sarwate Nov 11 '12 at 3:29
@DilipSarwate, I agree with you. In Australia we can have a savings account linked to a mortgage as an offset account, so that all your income goes into it to reduce the interest you pay, you use a credit card with an interest free period for all your spending, and the credit card is automatically fully paid off from the offset account on the due date each month. As the accounts are all with the same bank you don't pay any annual fee on the credit card and never pay any interest on it. – Victor Nov 11 '12 at 9:06
up vote 4 down vote

If you have a credit card with no interest free period, there is no drawback as you will be saving interest the sooner you pay it off.

However, if you have a credit card with an interest free period, the drawback on paying it earlier than the due date (such as when you first get the statement) is that you lose out on interest. For the period between when you first recieve the statement to when it is due, you could have your money earning you interest in a high interest paying savings account. Depending on how much you spend on your credit card each month and the interest rate you get, this may add up to quite a bit of additional cash each year.

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I was under the impression that paying a credit card in full by the due date would result in no interest being paid? – Dang Khoa Nov 10 '12 at 23:30
That's correct, but you'll lose out on the interest you earn on your money if you pay well before it's due. That's almost nothing right now (with interest rates below 1% annually) but that's the principle. – mbhunter Nov 11 '12 at 0:25
Right okay. I've got my money in a credit union that offers >1% interest (actually 6.2% on the first $500, then 0.1% afterward) which isn't exactly chump change. So - DON'T pay off so fast and let that money work for me, eh? – Dang Khoa Nov 11 '12 at 0:39
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Victor - as Joetaxpayer calculated below, the annual savings on a $2k monthly bill would be $20 annually, hardly "quite a bit of additional cash each year". The rest of your answer is good but I think that statement is misleading. – Jeremy Nov 11 '12 at 1:53
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@Jeremy, my average monthly credit card bill is about $5000, my interest rate is currently 6.6% (as I have a 100% offset to my mortgage). So that means my additional cash is about $330 each year, and that is on top of paying no interest or annual fees on my credit card, and receiving between $300 to $400 of gift cards from the points I earn on my credit card. So please stop assuming things, as different people have different spending habits and disposable incomes. – Victor Nov 11 '12 at 9:00
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up vote 2 down vote

Remember, carrying debt on a credit card and waiting to pay it is increased risk in the event something happens and you can't pay it off. I have 1 CC and I have it set to auto-pay on the day it's due (paid in full each month as I don't carry debt anymore - learned that lesson a hard way :) ).

So the day it's due it auto-drafts out of my checking. No worries of late payments, missed payments, etc.

If you feel that having any balance is bad then by all means pay it off the minute you get your statement. It should come at the same time each month (or close to the same time) and you should be able to setup an auto-payment to pay it off in full as soon as the new statement goes live.

To be honest, those extra few days of supposed interest saved by keeping the money in your checking account is so minimal that's it's probably not worth it. Most checking is horrible in interest (all my 'high interest' checking accounts are now less than 1% APR. boo.) and if you're late 1 day then bam! All that earned interest is gone in 1 late fee...

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up vote 0 down vote

Just to put in one more possibility: my credit card can have a positive balance, in which case I earn interest. If more money is due, it will automatically take that from the connected checking account. If that goes into negative, of course I have to pay interest.

I chose (argued with the bank in order to get) only a small credit allowance. However, I'll be able to access credit allowance + positive balance. That allows me within a day or so to make larger amounts accessible, while the possible immediate damage by credit card fraud is limited at other times.

Actually, the credit card pays more interest than the checkign account. Nevertheless, I don't keep high balance there because the risk of fraud is much higher for the credit card.

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up vote 0 down vote

Remember that if you make charges as the starting of your billing cycle, then you are receiving a free ~60-day loan. For those that are able to receive high interest rates on their, this means a greater opportunity to earn on their money.

For example:

Your billing statement ends on Jan 5th. On Jan 6th, you max out your credit card. Your billing statement ends on Feb 5th. Depending on your credit card, your grace period can be anywhere from 20 to 30 days. If your bill is due Mar 7th, you just gave yourself a free 60 day loan.

If you have multiple credit cards with different due dates and long grace periods, you can rotate which cards you max out to optimize the money you keep in savings.

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up vote -1 down vote

Some credit card rewards programs will not give you rewards for balances paid off early. I have a Capitol One Platinum card, and once paid off the full balance; both the full amount due for the recently ended billing period, and the amount that had accrued for the current billing period. I never received any reward points for the additional amount. Though this sounds like it's paying even earlier than you're talking about.

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I'd have called Cap One to request the credit. I doubt their fine print states you get no rewards under this circumstance. – JoeTaxpayer Nov 11 '12 at 20:45
I did contact them and they still gave me no credit. – Rob Mosher Nov 12 '12 at 18:33
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Which of the many credit cards offered by Capital One are you talking about? All the credit cards that I have held (including cards from Discover and Citibank) updated the rewards once a month, usually as part of the billing statement, or "soon" thereafter (Citibank being particularly bad), and gave credit for new purchases (less credits for returns for refunds) during the period covered. So, if you paid for a purchase before it was billed on a monthly statement, presumably the software treats it as no different from a credit due to a return) and so you got no rewards for that. – Dilip Sarwate Nov 12 '12 at 20:34
It's a Platinum. And your explanation sounds pretty reasonable. And it's easy enough to fix by just paying the total due rather than the total balance. – Rob Mosher Nov 12 '12 at 22:13

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