Why you should pay your credit card balance in full each month
Credit cards offer convenience, flexibility, and some even offer rewards like cash back.
Credit cards offer convenience, flexibility, and some even offer rewards like cash back. They make it possible to afford large purchases when you don’t necessarily have the cash on hand. However, with great power comes great responsibility. If you develop a habit of overspending each month and can’t pay it back, you’ll be charged a high-interest rate on your balance each month until it’s paid in full.
However, we understand that sometimes money gets tight and you might not be able to cover the full balance. So below we listed the differences between paying the minimum, paying more than the minimum, and paying your balance off completely so you can understand the pros and cons of each.
Paying The Minimum
Credit cards allow you to make a minimum payment that’s a small percentage of the total balance. You must pay at least the minimum to avoid late fees, an interest rate increase, and damage to your credit score.
If You Only Pay the Minimum
While paying the minimum will help you avoid negative consequences with your credit card company, stopping there will lock you into a cycle of credit card debt each month until it’s finally paid in full. If you charge up to $500 and only pay the minimum of $25, it would take you two years to pay off your balance plus whatever interest was added on top of your original balance.
If you keep using your credit card and only pay the minimum amount, your balance and interest charges are going to grow exponentially. As time passes, it’ll only become more difficult to get out of credit card debt.
The Power of Paying More
If you’re facing a credit card bill you can’t pay off in full, consider at least paying more than the minimum payment. Let’s go back to that $500 credit card bill and only paying the $25 minimum. While never using the card again means two years of debt and extra interest payments. But what if you could pay $50 a month instead? You’d be debt-free 13 months faster and pay less in interest.
Paying In Full
Ideally, the best thing to do is pay your credit card bill in full each month if you can afford it. Over time, this will make your credit score go up and keep you out of debt. The easiest way to keep your monthly balance attainable is to not overspend and always keep track of your monthly statement so that you can afford it.
FAQs
Paying In Full
Why is it important to pay your whole credit card balance each month? ›
Paying the full statement balance by your card's due date every month will allow you to avoid interest charges. The current balance of your credit card is an up-to-date calculation of your current debt.
What are the benefits to paying the full balance of your credit card each month? ›
When you pay your credit card balance in full, your credit score will improve. A higher score means lenders are more likely to accept your credit applications. They will also offer you preferential borrowing terms, like lower interest rates and higher limits.
Why is it wise to pay the full balance on a credit card? ›
Bottom line. If you have a credit card balance, it's typically best to pay it off in full if you can. Carrying a balance can lead to expensive interest charges and growing debt.
What is the benefit of paying all of your bills with a credit card? ›
Paying bills with a credit card in a nutshell
Some downsides could include extra fees or interest charges. Benefits could include increased payment flexibility and the opportunity to earn more rewards points. If you can do it responsibly, you might find that paying bills with a credit card is a good choice for you.
What is the advantage of paying your credit card balance in full each month you will incur only a small paid in full fee on your next credit card statement? ›
If you pay your full credit card bill by the due date, you don't pay any interest. However, if you carry that balance from month to month by only making the minimum payment, interest charges start accumulating. Selecting a card with a favorable interest rate can save you money in the long run.
Why is paying your credit card balance in full important quizlet? ›
important because you can aviod paying monthly interest charges. Credit card interest rates tend to be: higher than rates on other debt.
What happens if you don't pay full credit card balance? ›
Consequences for missed credit card payments can vary depending on the card issuer. But generally, if you don't pay your credit card bill, you can expect that your credit scores will suffer, you'll incur charges such as late fees and a higher penalty interest rate, and your account may be closed.
How to raise your credit score 200 points in 30 days? ›
How to Raise your Credit Score by 200 Points in 30 Days?
- Be a Responsible Payer. ...
- Limit your Loan and Credit Card Applications. ...
- Lower your Credit Utilisation Rate. ...
- Raise Dispute for Inaccuracies in your Credit Report. ...
- Do not Close Old Accounts.
It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.
You make one payment 15 days before your statement is due and another payment three days before the due date. By doing this, you can lower your overall credit utilization ratio, which can raise your credit score. Keeping a good credit score is important if you want to apply for new credit cards.
Does paying your credit card bill in full affect your credit score? ›
Paying off your credit card balance every month is one of the factors that can help you improve your scores. Companies use several factors to calculate your credit scores. One factor they look at is how much credit you are using compared to how much you have available.
What 2 things does paying your credit card bill help you avoid? ›
And it's always a good practice to pay your balance in full by your due date to avoid interest, late payment fees and dings to your credit. One way to limit overspending when using a credit card is to make weekly payments toward your balance, which can help promote healthy budgeting.
Is it beneficial to have a credit card and not use it? ›
Not using a credit card isn't necessarily a bad thing. However, it can come with some unintended consequences. Although charging inactivity fees is no longer legal, issuers have other options at their disposal — some of which could affect your credit score, your available credit and more.
What is the problem with paying all your minimum credit card balance each month? ›
Why? Because when you carry a balance on your credit cards, your credit card issuer will charge interest on your debt—and when you only make the minimum payment on your credit cards, those interest charges can quickly add up.
