Monthly credit card bills are a burden that most people just want to get out of the way — so why on earth would anyone choose to deal with them twice as often by paying every other week instead of once per billing statement?
There are several good reasons, actually.
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By paying their credit cards twice a month, borrowers can reduce their finance charges, pay down debt faster, expand their open credit, avoid missed payments and boost their credit scores.
And if you need more advice, this finance guru has a few extra tips to crush your credit card debt.
13 Annual Payments Are Much Better Than 12
With 52 weeks in a year, two bi-weekly payments equal 26 half-payments, or 13 full annual payments instead of the standard 12. That’s one full payment extra every year.
Since the 13th payment goes entirely toward your principal, it’s a powerful debt-reduction strategy that’s relatively painless because the extra payment is spread out incrementally over the whole year. FreedomFirst credit union states that this method can work for any recurring liability, including mortgages, but it’s especially useful with credit cards because of the way interest accrues on revolving debt.
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Smaller Daily Balances Diminish Compounding
According to the Consumer Financial Protection Bureau, credit card interest compounds daily based on your average daily balance. By making two payments per month instead of one, you keep your average daily balance lower and reduce the amount of interest that accrues. Even modest second payments can substantially reduce finance charges over time.
More Frequent Payments Increase Your Open Credit
Sofi refers to bi-monthly payments as the 15/3 method, with the first payment coming mid-statement, 15 days before your due date, and the second three days before the deadline.
Another reason to consider adopting the 15/3 strategy is that it reduces your all-important credit utilization ratio, which accounts for 30% of your FICO score. Even if you pay your statement balance in full, new charges eat into your open credit as the month drags on, depending on when your card provider reports your account activity.
However, bi-weekly payments take a bite out of those new charges twice as often, which has a positive effect on your utilization ratio and, therefore, your credit score.
Bi-Weekly Payments Can Align Neatly With Bi-Weekly Paychecks
Sofi mentions among the cons of 15/3 that it can be harder to remember twice as many payments. However, strategic scheduling can actually make it less likely that you’ll lose track.
That, according to SunWest Mortgage, is because most employers pay bi-weekly, so scheduling two automatic credit card payments to coincide with two monthly paychecks can create stability and predictability that you don’t get with one large payment every 30 days.
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This article originally appeared on GOBankingRates.com: The 15-Day Rule: Why You Should Consider Paying Your Credit Card Twice a Month
