Credit card payments are different than making payments to other creditors. Knowing when and how much to pay can save you a lot of money, whether you make your credit card payments in full or carry a balance.

Credit cards are the most flexible type of credit as far as repayment options go. That’s also the biggest problem with credit cards and why they’re so dangerous. With most cards, you can pay as little as 2% of your owed credit card balance, pay off the entire balance, or any amount in between. Remember, that’s a high-interest loan whenever you choose to pay off less than your balance owed. If you never carry a balance and pay your credit card bill in full every month, utilize the payment strategies in the If You Pay in Full Every Month section below. Otherwise, use the payment strategies in the If You Carry a Balance section that follows. The two sections suggest quite different strategies, so be sure to follow the one that’s appropriate.

If You Pay in Full Every Month

If you pay your credit card bill in full every month, you want to schedule its payment on the due date. Most credit card companies, including mine, set the default payment date to the day you’re paying the bill, not the due date, so be sure to make that important change when scheduling your payment on their website.

In the not-so-distant past, if your due date fell on a non-business day and you scheduled your credit card payment then, you were not only charged a late fee, but interest on the days it took to clean up the mess and resubmit your now higher payment. By law, credit card companies can’t do that anymore.

That’s why I love it when my credit card bill’s due date falls on a weekend or holiday. I confidently schedule it then, knowing they’re prohibited from pulling their old revenue-generating trick. Be aware that employees of your credit card company are staying up late tonight, thinking of new ways to deceive you, so stay diligent.

For most other loans, you should also schedule payments on the due dates. For example, if you submit your mortgage payment a few days early, you receive no benefit. The mortgage company will wait to credit your account until the due date per the loan’s amortization schedule. In other words, you won’t save any money. Same for payments on student loans and most auto loans.

Keep money in your account longer. Improve your own cash flow and potentially earn more interest and perks for yourself. Schedule the payment on the due date and not a day before if there is no benefit to paying early.

Be a Transactor

Credit card companies despise the type of behavior just described. If fact, they’ve come up with a nickname for us: Transactors. Trust me, “transactor” is not a term of endearment. Be a transactor. Never carry a balance. Always pay on time. Suck all the good out of your credit card and experience none of the bad.

Being a transactor will also help improve your credit score. Charging an item to your credit card and paying it off in full the following month is considered credit and a positive by the credit bureaus. This is true even though as a transactor you’re not being charged any interest.

Besides paying on time and never carrying a balance, add these other credit-boosting behaviors to your transactor persona and raise your credit score even higher:

• Never “overutilize” your credit card by charging more than 45% of your credit limit on any of your credit card accounts during a pay cycle. The credit score algorithm views that as a big negative. This is true even though you’re paying the balance off in full every month.

• Only keep credit cards that you use regularly. Underutilizing a credit card is scored negatively too, so close those cards you rarely use. If you stick to the suggested utilization limits on your remaining credit card(s), closing one down won’t affect your score much.

• Stay away from “department store” credit cards that only work at their store. It’s easy to accumulate a lot of them. Merchants offer discounts on purchases if you agree to open an account. Close them all down. Just having them open hurts your credit score since these types of cards have the highest default rates.

If You Carry a Balance

If you’re carrying a balance of any amount on your credit card, a completely different strategy is called for. This strategy potentially can cut in half the time and money it takes to pay off that credit card balance. It’s all about the timing of your payments.

Don’t pay your credit card bill on the due date like in the strategy described in the If You Pay in Full Every Month section. If you’re carrying a balance, make your credit card payment(s) as early as possible regardless of the due date. By law, when credit card companies receive payment from you, whether it’s once, twice, or five times during a payment period, your owed balance must be reduced on the day funds are received.

Credit card companies charge you interest every day on your owed balance. By reducing your balance before the due date, less interest is charged because of your now smaller balance versus paying on the due date. The earlier you can make a payment the more money you’ll save.

Credit Card Debt Example

Samir the Swiper has the following credit card debt he wants to eliminate:

Samir gets paid $1,600 every two weeks. This February he gets paid on the 2nd and the 16th, and his credit card bill is due on the 18th.

Samir does not want to wait until the 18th to pay. This is credit card debt which calls for a different strategy. He wants to pay as much of that $240 from his first paycheck on the 2nd. By reducing his credit card balance “early,” Samir will enjoy 16 days of reduced interest charges on that now lower balance versus waiting to pay on his due date.

If Samir can’t afford to pay the whole $240 from the first paycheck, he should finish it off on the 16th when he gets his second paycheck. Transferring the remaining money on the 16th after his paycheck clears will save Samir another 2 days of lower interest charges versus waiting till the due date to pay.

By continuing this behavior, Samir can drastically reduce the time and money it takes to pay off his credit card debt compared to paying on the due date. If Samir can manage to add more money to his $240/month payment, that $12,000 debt will disappear even faster.

Debt Desperate

The higher the interest rate and bigger the balance on the credit card you’re trying to pay off, the more debt desperate you need to be. If we’re talking double-digit interest and five-digit debt like Samir’s, you should be very desperate.

It’s you who should be in crisis mode and looking everywhere for extra cash. Any time extra dollars roll your way, send it off electronically, even if it’s just a little bit. In Samir’s case, since his credit card company is charging him a whopping 24% on his balance, every little bit extra translates into appreciable savings.

If you’re charitable, whether helping a family member, cause, church, or other entity, you need to be selfish, temporarily anyway. If necessary, have a heart-to-heart and explain how it’s you who’s in a crisis. You can be even more charitable once you rid yourself of that high-interest debt.

Have a get-out-of-credit card debt garage sale. Sell items over the internet. There are literally hundreds of ways to generate more money.

Besides slashing expenses and selling unwanted items, work on trying to make more money too. Corral as many overtime hours as you can or take on a second job until that high-interest debt is eliminated.

Transferring Money

However you choose to make your credit card payments, make sure you take advantage of technology.

Be sure you use direct deposit for all sources of income. If you’re carrying a balance, get in the habit of transferring money to your credit card company regularly as soon as it clears your account. The faster your credit card payments get there, the more money you save.

If you’re a transactor, remember to schedule your credit card payment on the due date of the bill and not a day before. You may think a day or two won’t matter, but over time your savings really add up.

[Best Money Newsletter originally published 2023 0205 on the Snow Moon]