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Consider the following scenario:

A credit card has a balance of $5000 that cannot be paid off at this time. Every week I earn $500 that is deposited to my bank. My monthly minimum payment is $200. I know it is best to pay the debt off as soon as possible. Having a limited understanding of APR and how credit cards work, I'm not sure when the right time to make payments is.

As money is earned, when should it be transferred to the credit card to pay off the balance??

I want to pay off my balance as soon as I can, while the interest is at a minimum.

Since interest isn't applied to a card until the end of each billing cycle, I thought it didn't matter if, say $2000 was transferred to the card vs. $500 every month.

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    You are accruing interest on a daily basis if you carry a balance forward. (I don't recall whether new charges immediately accrue interest.) Note that the amount of interest you save by paying weekly vs monthly will be small. (Also, the amount you pay earlier in the month does not apply to the minimum payment due at the end your billing cycle.) The important thing to do is to pay as much above your minimum payment as possible.
    – chepner
    Apr 12, 2019 at 22:32
  • @chepner looks like an answer to me, might vary but on all my cards I'd only lose the grace period if I made late payments, so as long as minimum payments are timely new purchases do not accrue interest immediately.
    – Hart CO
    Apr 13, 2019 at 0:06
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    Is the $500/week your total earnings, or what you have after deducting necessary expenses and can put toward the credit card? If that's total, how much are you able to put toward the credit card?
    – Ben Voigt
    Apr 13, 2019 at 2:31
  • @BenVoigt It probably doesn't matter if they're disciplined. Putting ($Income - $Expense) toward repayments isn't any better than putting $Income toward repayments immediately, then using the card to pay for $Expenses. But being disciplined about card usage is a big caveat.
    – Lawrence
    Apr 13, 2019 at 12:59
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    @Lawrence: That's true, but I was actually trying to estimate how long OP is going to be carrying a balance
    – Ben Voigt
    Apr 13, 2019 at 16:52

1 Answer 1

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Summary: the difference between frequent smaller payments versus one large payment each month is small. The important thing is to pay as much as you can each month to bring the balance down, and to limit your spending to keep the balance from growing more.

Check the terms of your credit card to confirm what I am saying below.

You accrue interest daily on any balance you carry forward; only new charges are interest-free until the end of your billing cycle.

Payments are first applied to interest due and outstanding balance before they are applied to new charges, I believe.

Early payments do not count against the minimum payment that becomes due at the end of you billing cycle. The minimum payment is determined by your balance at the end of your billing cycle, and does not take into account payments posted before that date.

The amount of interest you save by making early payments (vs one large payment when you receive your statement) is probably minimal. Say your APR is 24%. Your monthly interest rate is then 2%, which means each day you accrue roughly 2/30 = 0.067% in interest. If you pay $200 mid-month and $200 at the end of your cycle, you are only saving roughly 14 * 0.067% * 200 = $1.88 in interest compared to just paying $400 at the end of the month.

For simplicity, I would just continue making your regular monthly payment. However, the important thing is to pay as much as you can each month.

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    Some cards don't extend interest-free periods on new charges if the balance wasn't paid in full, on time, at the previous billing cycle.
    – Lawrence
    Apr 13, 2019 at 13:01
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    Hence my first sentence after the summary. (I'll try to emphasize that more, though.)
    – chepner
    Apr 13, 2019 at 13:02
  • @chepner the math was pretty much what i was looking for (although I guess I should have just done that myself haha). Thanks for this, I will check against my card but this is good information.
    – Jacob Raccuia
    Apr 13, 2019 at 16:45
  • You're dealing with the absolute interest from monthly vs more frequent payments, but I would argue that the relative interest due is more important. If OP were putting $500 toward the card each week (which is not clear), then weekly payments would have an average time of about 5.5 weeks (half of the 11 week time to pay off) while monthly payments would have an average time of some 8.5 weeks, which is about 50% more in interest charges.
    – Ben Voigt
    Apr 13, 2019 at 16:54

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