Why Paying your Credit Card by Direct Debit will save you Money

Did you know you can keep the interest charges that you pay low just by timing your purchases and payments the right way? If you compare credit cards in terms of how they compute and apply interest charges before you apply for a credit card, you can choose a credit card that works with your payment schedule and saves you money on interest every month. Here's how.

First things first - pay within the grace period.
The grace period is a period of time during which you can pay off a purchase and incur no interest on it. If you regularly pay off the charges on your credit card within the grace period, you'll save a considerable amount in interest charges over the course of a year.

Know which method is used to calculate interest.
Credit card companies use several different methods to compute interest and apply it to your account. Each of them has distinct advantages, either for you or the card company. By knowing how the interest on your outstanding balance is computed and when it's applied, you can time your payments so that you incur the least amount of interest possible.

• Interest computed on beginning balance
  Some credit card companies calculate your interest based on your balance at the beginning of the payment period, before applying your payments. To keep interest charges low, make your payments early in the period.
  
• Interest computed on ending balance
  Others calculate interest on your balance at the end of the payment period, after taking into account your payments and purchases for the month. Make your purchases early and pay them before the end of the billing period.
  
• Interest computed on average daily balance
  This is generally recognised as being the fairest method of computing interest charges, favouring neither you nor the credit company. The company calculates your average daily balance over the course of the month, and bases their interest charge on that figure. Suppose you start the month with a balance of ₤150.On the tenth day, you make a payment of ₤75, and on the twenty-fifth day you buy a new stereo for ₤80. The calculation for that would look like this: 10 days at ₤150 (₤1500) + 15 days at ₤75 (₤1125 + 5 days at ₤155 = ₤3400/30 = ₤113.33. The interest charge for the period will be calculated on ₤113.

Pay your credit card bill by direct debit.
When you pay your account by direct debit, you can specify which day of the month you want your payment to go out. If you know which day the credit card company closes accounts to make interest calculations, you can time your payment to be most advantageous to you. In addition, you never have to worry about late payments and fees.

At moneyeverythinng.com, you'll find all the information you need to compare credit cards. You'll find complete information on dozens of credit card offers so that you can make an informed choice when you apply for a credit card.