CUTTING CREDIT
Pay Credit Card Bills
COSTS $ Early
1. If you carry a balance on your credit card, the lower the annual percentage rate (APR) of your card, the less you will pay in
interest or fnance charges during a given year. In short, if you never pay your bill in full and other features of several cards are the
same, the one with the lowest interest rate will save you the most money over time.2. If you always carry a balance, making your
monthly payment early in the billing cycle (even before the stated due date on the billing statement) will also save you money. Why?
Because most credit card issuers use the average daily balance method to fgure monthly interest or fnance charges. If you make
your monthly payment early in the billing cycle, you reduce the daily balance for more days in that cycle. This also reduces the total
balance used to fgure the average daily balance for that month. See the back page of this fact sheet for examples of how paying
early in the billing cycle reduces the monthly interest charges.
I’m confused. One source says I
should really be concerned about the
annual percentage rate for my credit
cards and another source
recommends paying bills early in the
%
College of Agricultural Sciences Agricultural Research and Cooperative Extension
matter when I pay my credit card bill
as long as it’s paid by the due
billing cycle to save money. Which
source is correct? Does it really
Unlike “one-size-fts-all” clothing, the 3. If you pay your monthly bills in full
best advice about credit cards really each month by the due date, you will
depends on many personal factors avoid all interest charges.
including how you use the card and
your repayment habits. Both sources
?
have some truth and useful points.
date?
Prepared by Cathy Faulcon Bowen,
Example 1. Credit Card Changes and Interest when Monthly Payment Is Made Early in the associate professor, Department of
Billing Cycle. Agricultural and Extension Education. Other
publications available in this series are: Live
[previous balance (May) = $500, APR = 0.18%, and monthly interest rate = 1.5]
June June June June June Within Your Means, Compare Annual
Percentage Rates, Know Your Credit
1 7 13 19 25: $300 furniture Rights, Understand Credit Fees,
2 8 14 20 26 3 9: $400 15 21 27 Understand Grace Periods, The Fair Credit
payment 4 10 16 22 28 5 11 17: $30 23 29 Reporting Act, Your Consumer Rights, and
prescription 6 12 18 24 30 Pay More than the Minimum.
Visit Penn State’s College of Agricultural Sciences on
Average Daily Balance Calculations Date # of Days Current Balance Total Balance in Period
the Web: www.cas.psu.edu
(a) (b) (c ) (b ) x (c) = (d) Jun e 1 –8 8 5 00 8 x 500 = 4,000 June 9 –16 8 500 –
400 = 10 0 8 x 1 00 = 80 0 Jun e 17 –2 4 8 10 0 + 30 = 130 8 x 130 = 1, 040 June Penn State College of Agricultural Sciences research,
25–3 0 6 13 0 + 300 = 4 30 6 x 430 = 2,58 0 Total Balance = $8,420 extension, and resident education programs are funded
in part by Pennsylvania counties, the Commonwealth of
Average daily balance = total daily balances/number of days in billing cycle = Pennsylvania, and the U.S. Department of Agriculture.
$8,420/30 = $280.67
Interest charge = $280.67 x 0.015 = $4.21 This publication is available from the Publications
Distribution Center, The Pennsylvania State University,
112 Agricultural Administration Building, University Park,
PA 16802. For information telephone 814- 865-6713.
Example 2. Credit Card Changes and Interest when Monthly Payment Is Made Late in the Where trade names appear, no discrimination is
Billing Cycle. intended, and no endorsement by Penn State
Cooperative Extension is implied.
[previous balance (May) = $500, APR = 0.18%, and monthly interest rate = 1.5]
June June June June June This publication is available in alternative
1 7 13 19 25: $300 furniture media on request.
2 8 14 20 26 3 9 15 21 27 4 10 16 22 28 5 11 17: $30 23 29: $400 The Pennsylvania State University is committed to the
prescription payment 6 12 18 24 30 policy that all persons shall have equal access to
programs, facilities, admission, and employment without
regard to personal characteristics not related to ability,
Average Daily Balance Calculations Date # of Days Current Balance Total Balance in Period performance, or qualifcations as determined by
University policy or by state or federal authorities. It is
(a) (b) (c ) (b ) x (c) = (d) Jun e 1 –16 16 50 0 16 x 500 = 8, 000 June 17 –24 8
the policy of the University to maintain an academic and
500 + 30 = 5 30 8 x 530 = 4, 240 June 2 5 –2 8 4 53 0 + 300 = 830 4 x 830 = work environment free of discrimination, including
3.320 June 29– 30 2 83 0 – 4 00 = 430 2 x 43 0 = 862 Total Balance = harassment. The Pennsylvania State University prohibits
$16,42 0 discrimination and harassment against any person
because of age, ancestry, color, disability or handicap,
Average daily balance = total daily balances/number of days in billing cycle = national origin, race, religious creed, sex, sexual
$16,420/30 = $547.33 orientation, gender identity, or veteran status.
Interest charge = $547.33 x 0.015 = $8.21 Discrimination or harassment against faculty, staff, or
students will not be tolerated at The Pennsylvania State
University. Direct all inquiries regarding the
nondiscrimination policy to the Affrmative Action
Director, The Pennsylvania State University, 328
Boucke Building, University Park, PA 16802-5901; Tel
814-865-4700/V, 814-863-1150/TTY.
© The Pennsylvania State University 2002
Produced by Ag Communications and Marketing
CODE # UI325 R4M01/08mpc4216