Is it better to make 2 payments on credit card?

Strategic Credit Card Payments: Making Multiple Payments to Save on Interest

When managing your credit card debt, the frequency of payments you make can impact your overall interest costs. While some cardholders may opt to make only the minimum payment each month, a more effective strategy involves making multiple payments whenever possible.

Understanding Average Daily Balance

The average daily balance on your credit card is the average amount of debt you carry over a billing cycle. This balance is used to calculate the interest you owe on your purchases. By making frequent payments, you can lower your average daily balance and reduce the amount of interest you pay.

How Frequent Payments Help

When you make multiple payments on your credit card, you essentially divide your total balance into smaller chunks. Each time you pay, the balance from those payments is subtracted from your average daily balance. As a result, your average daily balance over the billing cycle will be lower, which in turn reduces the interest you owe.

Benefits of Multiple Payments

Making strategic credit card payments offers several benefits:

• Lower interest charges: Frequent payments minimize the average daily balance, reducing the total amount of interest accrued.
• Faster debt repayment: Smaller, more frequent payments can help you pay off your debt faster than making only the minimum payment each month.
• Improved credit score: Regularly making payments on time and reducing your debt can positively impact your credit score.

Tips for Making Multiple Payments

To maximize the benefits of multiple payments, consider the following tips:

• Set up automatic payments: Automate payments from your checking account to ensure timely payments and avoid late fees.
• Make extra payments when possible: If you have extra funds available, make additional payments towards your balance.
• Use a balance transfer card: Consider transferring your balance to a credit card with a 0% introductory APR to save on interest during the promotional period.

Example

For example, let’s say your credit card balance is $1,000 and you have a 15% APR. If you make the minimum payment of $25 each month, it would take 68 months to pay off the debt and you would pay a total of $163 in interest.

In contrast, if you make two payments of $50 each month, your average daily balance would be lower, and you would pay off the debt in 48 months. With this strategy, you would save $43 in interest compared to making only the minimum payment.

Conclusion

Making multiple payments on your credit card is a strategic approach that can significantly reduce your interest costs, accelerate debt repayment, and improve your credit score. By dividing your payments into smaller chunks and reducing your average daily balance, you can effectively manage your credit card debt while saving money in the long run.