Question

To minimize finance charges calculated by the daily balance method, when in the billing cycle is it best to make purchases and payments?
a.
Both purchases and payments should be made early in the billing cycle.
b.
Both purchases and payments should be made late in the billing cycle.
c.
Payments should be made early in the billing cycle, and purchases should be made late in the billing cycle.
d.
Purchases should be made early in the billing cycle, and payments should be made late in the billing cycle.

Answer 1

c. Payments should be made early in the billing cycle, and purchases should be made late in the billing cycle.

Reason: the daily balance method computes interest from the average balance each day. Paying early lowers the balance for most days; buying late means the new charges count for fewer days.