Money Tip of the Day: Daily Interest

Virtually all credit cards, most car loans that charge interest, and even some mortgages calculate interest on a daily basis.

Every day their computers see what your principal balance is and apply interest charges to it.

So if you’re in the unfortunate position of having to pay interest on a credit card balance (38% of Americans don’t, and 62% do), or if you have a card loan or mortgage that uses daily interest calculation, you can save money by getting your payment in as soon as possible.

Once you’re sure that you have the money and won’t run short on some other bill, send the payment, even if it’s 15-20 days before the due date. If you’re really aggressive, you can make your payment up to 30 days early by making the payment online immediately after the lender has generated their statement.

Pay by phone (if there’s no fee) or, if you’re comfortable with your online security, pay online. If you pay online, it’s usually better to do so directly through the financial institution’s web site instead of a third-party provider like CheckFree or some other bank’s BillPay service (which probably is CheckFree in disguise anyway), because the third parties add extra time into the process.

Just one example how this little idea can help: Consistently paying $200 a month 20 days before the due date on a $5,000 debt with an 18% rate calculated daily will save you about $80 in interest by the time you pay it off (vs. making every $200 payment on the due date).

By the way, I’m sure you’ll be less-than-pleased to know that the card industry calls people who always pay in full “freeloaders.”