Paying Your Credit Card Debt Almost In Full

Some people who keep a low balance on their card seem to make a habit of it. I know a guy who’s had a balance of between $30 to $80 every month over the last seven months. When I asked him why he’s doing it, he said he just doesn’t see the point in clearing his balance.

If you’re like him and don’t see the point in clearing your balance, this mini-tutorial might help you. That small $30 balance on your card can actually be costing you more than you think.

Most credit card companies use a technique called “Average Daily Balance” to compute your total interest charges for each month. If your card has zero balance at the end of the month then you won’t be charged any interest. If there is any balance left (even just $1), however, you’re gonna be paying for the average daily balance on the card for the whole month.

For example, if my friend has an average daily balance of $500 during the month, he will be charged interest on $500 even though he only has $30 left on his credit card balance. Whereas, if he paid off the remaining $30 and cleared the card, he would get charged zero in interest for the month.

If you’re one of the people who has a very small balance left every month, it might be time to consider its repercussions. You’re essentially paying for something you don’t need to - so if you can, always pay that bill in full!