- The Case for Paying Your Credit Card Balance in Full Each Month
- The Case for Carrying a Balance on Your Credit Card
- How to Decide What’s Right for You
If you’re trying to decide when to pay your credit card bill, you’re not alone. Many people struggle with this decision, as there are a few different factors to consider. Ultimately, it’s up to you to decide what’s best for your financial situation. However, we can offer some guidance on when you should pay your credit card bill.
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The Case for Paying Your Credit Card Balance in Full Each Month
You avoid paying interest
Paying your credit card balance in full each month has several benefits. The most obvious is that you avoid paying interest on your balance.
When you only make the minimum payment, the vast majority of your payment goes toward paying the interest on your balance, leaving very little to reduce your actual debt. This can extend the amount of time it takes to pay off your debt and increase the total amount you end up paying.
Paying your balance in full each month also helps you build a good credit history. Your payment history is one of the biggest factors lenders look at when considering you for a loan, and making timely payments can help improve your credit score. A higher credit score can help you qualify for better terms on future loans, including lower interest rates.
You improve your credit score
When you consistently carry a balance on your credit card from month to month, your credit utilization goes up. That’s the percentage of your available credit that you’re using, and it’s one factor that makes up your credit score. So, when you pay off your balance in full each month, your credit utilization goes down — and so does your credit score.
You free up cash flow
When you pay only the minimum, more of your payment goes toward interest and fees than the actual balance. That’s because credit card interest is calculated based on the average daily balance of your account. So, if you have a balance of $1,000 and you make a minimum payment of $25, most of that $25 will go to fees and interest, leaving very little to actually lower your debt.
On the other hand, if you pay your balance in full each month, you save on interest and fees because you never carry a balance from one month to the next. In fact, some credit card companies offer incentives for paying your balance in full each month by offering rewards points or cash back on your purchases.
Another advantage of paying off your credit card balance each month is that it keeps your credit utilization low. Credit utilization is the amount of debt you have compared to your credit limit and is one of the factors that affects your credit score. So, if you have a $2,000 credit limit and a $1,000 balance, your credit utilization would be 50%.
The Case for Carrying a Balance on Your Credit Card
You can earn rewards
If you have a rewards credit card, you may want to consider carrying a balance so you can earn more points, miles or cash back. Just be sure to make at least the minimum payment each month, and keep an eye on your interest charges so they don’t outweigh your rewards.
You can improve your credit utilization ratio
Your credit utilization ratio is the percentage of your credit limit that you’re using at any given time. So, if your limit is $1,000 and you have a balance of $500, your credit utilization ratio is 50%.
Ideally, you want to keep your credit utilization ratio below 30%. The lower it is, the better for your credit score. That’s because a high credit utilization ratio indicates to lenders that you may be struggling to manage your debt.
By carrying a balance on your credit card from month to month, you can improve your credit utilization ratio. That’s because your balance will be reported to the credit bureaus as part of your monthly statement balance. So, if your statement balance is less than your credit limit, your credit utilization ratio will be lower.
Of course, you’ll need to be careful not to carry too much of a balance. If you do, you’ll end up paying interest on your debt, which can offset any benefit to your credit score.
You can take advantage of 0% APR offers
If you get a credit card with a 0% APR introductory offer, you can carry a balance on your card for a certain period of time without accruing any interest. This can be a great way to finance a large purchase, or to consolidate other debts onto one card. Just be sure to pay off the balance before the intro period expires, or you will be charged interest at the regular APR.
How to Decide What’s Right for You
Generally, you should pay your credit card balance in full every month. This will help you avoid interest and keep your credit utilization low, which can both help your credit score. That said, there are a few situations where it might make sense to carry a balance from month to month.
Consider your financial goals
If you’re trying to get out of debt, you may want to avoid accruing any more interest charges. In this case, you would want to pay off your credit card balance in full each month. On the other hand, if you’re trying to build up your credit score, you may want to keep a balance on your credit card (using less than 30% of your credit limit) and make timely payments each month.
Consider your spending habits
When you’re trying to decide when to pay your credit card, one of the main things you’ll want to consider is your spending habits. If you tend to spend a lot of money on your credit card, you may want to pay it off more frequently so that you don’t end up paying interest on your purchases. On the other hand, if you only use your credit card for occasional purchases, you may be able to get away with paying it off less often.
Another thing to consider is how often you get paid. If you get paid monthly, you’ll probably want to pay your credit card bill around the same time so that you have the money available when the bill comes due. If you get paid more frequently, you may be able to get away with paying your bill every other week or even every week.
Finally, you’ll also want to consider any rewards or perks that your credit card offers. If your card offers cash back or other rewards for timely payments, you may want to make sure that you pay off your balance in full each month so that you can maximize your rewards.
Consider your credit score
Your credit score is one of the most important factors in deciding when to pay your credit card. If you have a high credit score, you may be able to get away with paying your card less often. However, if you have a low credit score, it’s important to pay your card more often to avoid damaging your score further.
In general, it’s a good idea to pay your credit card at least once a week. This will help ensure that you’re never carrying a balance on your card and that you’re always making on-time payments.