Basics, Saving Money

How To Maximize Or Minimize Interest

If you are working to get out of debt, one of your goals will be to minimize the amount of interest that your creditors will charge you.  If you are working to save money, one of your goals will be to maximize the amount of interest that your savings will earn.  Here’s how to minimize the amount you will be charged and maximize the amount you will earn.

Minimize Interest Charged –

1.  Do not wait until the due date to make payments.

Most credit card companies use the average daily balance when calculating your interest charges.  What does this mean to you?  The sooner you make your payments, the lower your average daily balance will be.  The lower the average daily balance, the lower your interest charges will be.

2.  Carefully consider a balance transfer from a higher-rate card to a lower-rate card.

This one can be tricky.  Before you transfer debt from one card to another, be absolutely sure that you are committed to paying off the debt.  Our goal is to eliminate debt – not just move it around.  With all that being said, transferring debt from one card to another can make since, provided you understand the terms of the balance transfer, correctly calculate the cost of the transfer (transfer fee), and can pay off the transferred balance before the terms of the transfer expire.

3.  Get angry and attack your debts.

I can remember it like it was yesterday.  I was thirty years old, I had been working since I was fourteen, and I had almost nothing to show for it.  Sure, I had a house full of stuff, but I also had a mailbox full of credit card bills.  I can’t quantify the impact of attitude, but I can definitively state the following – Once I got sick and tired of being sick and tired, my financial life turned around.  If you really want to minimize interest, get angry, work hard, live on a budget, find another job, sell some junk, make lots of extra payments, and attack those debts!

Maximize Interest Earned

1.  Make deposits early and often.

Different banks use different methods for compounding interest.  Money saved with ING Direct (where we keep a portion of our savings) accrues interest daily and then that interest is compounded monthly.  Basically, whatever amount is in our account is multiplied, each day, by that day’s interest rate.  At the end of the month, all accrued interest is then added to our account balance.  Suffice to say, the higher the daily balance, the more interest that will accrue.

2.  Automate your savings.

Remember the old saying: out of sight, out of mind.  Build your automatic savings plan into your budget and you’ll ensure savings success.

3.  Consider a savings account which pays a higher rate of interest.

If you are comfortable with multiple accounts, consider opening a savings account that pays higher interest than your current account.  You might find a higher rate with a local bank, an online bank, or a credit union.  Be smart.  Do some research and understand all of the terms and conditions associated with any account you might open.  A good place to research rates is over at Bank Rates.  You might also consider certificates of deposit and money market accounts.

It’s extremely important, as we move from indebtedness towards prosperity, that we consistently look for opportunities to earn more (and pay less) interest.  I am not a financial professional (nor do I play one on the Internet), so I’m just like you guys.  I’m looking for ways to stay out of debt and improve my financial situation.

This post (and this week’s series of posts) is aimed at those who are just getting started and may have questions about how this personal finance stuff works.  My goal is to break-things-down and discuss the basics.  I am a big fan of keeping things simple, and I think you’ll see that reflected in this week’s posts.  Rock on!

This week I will be writing a series of Back to the Basics articles.  I encourage you to subscribe to No Credit Needed via RSS or Email.  Also, if you liked this article, please consider promoting it via the social network buttons below.  Comments are always appreciated – and don’t forget to follow me over at

4 thoughts on “How To Maximize Or Minimize Interest

  1. The best solution is just not to carry any debt at all, but if you do have debt, these suggestions are very helpful. What do you recommend in terms of multiple savings accounts? What would one look for to get the best option?

  2. Ellen
    I have just one savings account, but I also have an interest-bearing checking account. It earns interest (a little less than the savings account) but I always have immediate access to funds.

  3. @mewithoutdebt – I have never been succesful in calling my creditors, i even tried Ramit’s script from , I got a .25% decrease that was still around 14%!

    I think the biggest thing is the mentality, the idea of “Getting Angry and Attacking your Debt” is textual gold. Its the sole reason I have been able to cut down my own personal CC debt. Get angry!!!

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