Should You Pay Off Your Credit Card Every Month

Clever Ways To Pay Off Your Credit Card Faster

Do you feel stuck in a never-ending cycle of credit card debt? If every month you find yourself paying just the minimum balance due or carrying a high balance on your credit cards, you have whats known as revolving debt. Unfortunately, this kind of debt has a negative effect on your . However, it is possible to pay off credit card debt and end this cycle, once and for all.

Heres a list of six clever ways to pay off your credit card faster:

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How Long Does It Take To Pay Off A Credit Card Balance

If you stuck with the minimum monthly payments until you paid off that $1,000 credit card balance, your interest payments would total nearly $1,700. Plus, it would take 169 months to pay it off. A critical personal finance goal is to save an emergency fund that can support you for 3-6 months, but this can take some time to build up.

How Much Should You Pay Towards Your Credit Card Balance Every Month

In general, it is recommended that you use up to 20% of your credit limit. Having a lower credit utilization rate implies that you are not likely to default on your credit payments. When it comes to paying off your credit card, try to pay the most you can otherwise, make at least a minimum payment.

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How To Pay Off Credit Card Debt

The impact on your credit and finances of carrying credit card balances should be enough to convince you that low or no credit card debt is best. But don’t get discouraged if you can’t afford to pay off your credit cards all at once. The average U.S. consumer carries a credit card balance of nearly $6,200, not an amount most can quickly come up with. While it may feel overwhelming, try to focus on paying down the debt as soon as possible.

Here are strategies to help you pay off credit card debt.

Credit Counseling Can Help For As Long As You Need It

With credit counseling, you get personalized coaching and assistance to help you create a budget and a plan to become debt free over a set period of time.

You can even sign up for a Debt Management Plan to really increase your chances of success.

DMPs are optional, and they arent for everyone, but if youre a good candidate, a DMP lets you consolidate all of your monthly credit card payments into one payment that you send to a credit counseling agency. Then the credit counseling organization distributes your payments to your creditors, ensuring everyone is paid on time.

A major benefit of the DMP is many creditors will reduce the required monthly payment amount, lower or suppress interest, waive fees, and re-age or bring the account current, and other concessions to make it easier for you to pay off that credit card balance in full.

There are sacrifices to be made in exchange for these concessions, though. You may not open any new credit or use credit cards at all while on a DMP. Your cards will be cut up and accounts closed when you begin the repayment plan.

But one thing that is crucial to bear in mind is that a DMP is here as long as you need it. If your financial circumstances change and youre able to manage your finances on your own, youre always free to leave the DMP, reapply for credit card accounts, and resume your normal payments.

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Researching Debt Settlement Companies

Before you enroll in a debt settlement program, do your homework. Youre making a big decision that involves spending a lot of your money money that could go toward paying down your debt. Check out the company with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm youre considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

Enter the name of the company name with the word “complaints” into a search engine. Read what others have said about the companies youre considering, including news about any lawsuits with state or federal regulators for engaging in deceptive or unfair practices.

A Grace Period On New Purchases

Starting the billing cycle with a $0 balance will also mean you benefit from a grace period on new purchases. This period tends to last between 21 and 25 days, giving you a window of time to clear your new balance before your issuer charges any interest or additional fees.

Grace period will only apply to the purchases you make on your credit card. Other types of transactions, like cash advances, can start accruing interest and charges straight away.

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Using A Credit Card To Pay Medical Bills

Medical bills can be overwhelmingly expensive, especially if you’re uninsured. If you’re having trouble paying your medical bills, negotiate an agreement with the hospital or other company to whom you owe money. Don’t add to your bills and stress by adding exorbitant credit card interest rates onto them. You should also go through your medical bills a second or third time, making sure they are accurate and you understand all the charges.

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When Is The Best Time To Pay My Credit Card Bill

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At the very least, you should pay your credit card bill by its due date every month. But in some cases, you can do yourself a favor by paying it even earlier whenever your credit utilization gets close to 30%. Here’s why that is.

To Improve Credit Score Pay Sooner

Credit card users may have noticed already that exceeding 30% of a monthly credit limit can hurt a credit score. Less well-known, however, is another way to influence that percentage, known as . This adds a different type of valueone that goes beyond money spent or saved.

But without knowing exactly when your balance is reported to credit bureaus, whats there to do? A common strategy for those focused on improving their credit score is to simply pay off the credit card bill quickly with the expectation that doing so is more likely to precede reporting than if the payment was stalled.

Its also possible to pay off the balance anytime credit utilization nears 30%, even if that means paying several times within a billing period. Along with close monitoring of ones credit utilization, this might require some financial stability and might be impossible for people who find themselves waiting on the next paycheck in order to afford paying down a credit card bill.

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How Does It Affect Your Credit Score

In the end, only employees and officers privy to FICOs algorithms know exactly how a 0% utilization affects your credit score.

According to MyFICO, Barry Paperno, consumer operations manager for FICO, stated that a tiny reported balance can trump a zero balance.

In short, the lower a consumers credit utilization, the better, but having a small balance is slightly better than having no balance at all.

Thus, its clear that having a small balance will benefit your score but if I had to guess, its not by a whole lot. But if you are shooting for a perfect credit score, it could probably help you get there.

One thing to remember is that lenders often have their own systems that work in conjunction with FICO scores.

Its very possible that their systems factor in credit card usage on others cards because that would indicate to them that you are a more profitable customer .

When applying for a credit card, Ive even had bank reps on the phone bring up the fact that I have a card that wasnt getting put to use.

Thus, even if the benefit to your FICO score is minimal, Id still try to show usage on my credit cards so that other lenders will view you more favorably.

Easier To Manage Repayments

You should avoid only making the minimum payment on your credit card when possible even if it may seem more affordable in the short-term. Issuers calculate these repayments at a very low rate typically between 2% and 5% of your outstanding balance. It could take you decades to pay off your full debt along with all the interest you will be accumulating.

Paying off your full balance makes your repayments much more straightforward. It can also encourage you to only borrow what you can afford to repay in the next month. If you cannot clear your entire credit card debt, repay as much as possible and calculate an ongoing repayment plan.

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What Is The Rule Of Thumb About Paying Your Credit Card Balances

While your credit card issuer gives you the option of paying just a portion of your outstanding balance, as a rule of thumb, you should pay your full credit card balance each month.

This is because if you pay your balance slowly, for example, making minimum payments only, it could take years to pay it off. Over that time, you might pay hundreds of dollars in interest.

What Happens When You Carry A Credit Card Balance

Over time, these positive marks can result in credit score increases, which may open you up to more loan options and lower interest rates. When you carry a credit card balance from month to month, these positive marks come at the expense of interest charges.

Its Best to Pay Your Credit Card Balance in Full Each Month Ideally, you should charge only what you can afford to pay off every month. Leaving a balance will not help your credit scoresit will just cost you money in the form of interest .

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A Potential Extension On Your Credit Limit

Clearing your balance each month will show your issuer that you can manage debt well. They may be more willing to approve requests to increase your or may even offer you an increase before you ask.

An increased credit limit gives you greater financial flexibility. Make sure you can afford the higher monthly repayments before making the request or accepting an offer from your issuer. Dont be tempted to spend more because you have the option, as this can make it more difficult to repay your balance in the future.

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Less Debt Better Scores

It’s always a good idea to pay off credit card debt, regardless of how that debt repayment impacts your credit scores. Unless you have an intro APR deal, any outstanding balance carried from month to month accrues interest — at a high interest rate.

Happily, you don’t have to choose between paying down high-interest debt and your credit score — you should almost always see an improvement in your score when you pay off credit card debt. It’s hard to predict how much your credit score will change, but hopefully this guide helps you estimate the potential change.

What Is Credit Card Interest

Nobody will hand you money without expecting something in return. Interest is what the credit card company gets in return for the money they lend you every time you charge something to your card.

Interest is calculated using whats called the Annual Percentage Rate or APR. Most credit cards have a variable APR. Some will charge different APRs for different purchases. For example, a purchase at a store will usually carry a lower APR than a cash advance.

Since interest rates are variable, you might be wondering what can increase your credit cards APR and if you should be worried.

Generally, the APR fluctuates with the prime rate. Companies can only raise your APR after a specific period of time. However, if your credit score drops considerably, or you are more than 60 days behind on payments, your credit card company has the right to raise your APR.

Unfortunately, credit card interest rates tend to be pretty high to start with. Currently, the average APR forcredit cards is 16.20%.

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Beware Of Debt Settlement Scams

Some companies offering debt settlement programs may engage in deception and fail to deliver on the promises they make for example, promises or guarantees to settle all your credit card debts for, say, 30 to 60 percent of the amount you owe. Other companies may try to collect their own fees from you before they have settled any of your debts a practice prohibited under the FTCs Telemarketing Sales Rule for companies engaged in telemarketing these services. Some fail to explain the risks associated with their programs: for example, that many consumers drop out without settling their debts, that consumers credit reports may suffer, or that debt collectors may continue to call you.

Avoid doing business with any company that promises to settle your debt if the company:

• charges any fees before it settles your debts
• touts a “new government program” to bail out personal credit card debt
• guarantees it can make your unsecured debt go away
• tells you to stop communicating with your creditors, but doesnt explain the serious consequences
• tells you it can stop all debt collection calls and lawsuits
• guarantees that your unsecured debts can be paid off for pennies on the dollar

Keep Track Of Your Spending

Take charge of what you owe by keeping track of money coming in and going out. If you know what you’re spending, it’s easier to keep up with bills and credit card payments. You can track your spending in a few different ways.

Savannah’s smart choice

Savannah owes nearly $10,000 in total on her three credit cards. The average interest rate on the three cards is 20%. The minimum monthly repayment for the cards is about $200.

Savannah works out that if she only makes the minimum repayments each month:

• It would take 61 years to pay off the three cards.
• She would pay over $42,000 in interest.

Instead, she decides to pay $300 a month. This means:

• It will take about four years to pay off the three cards.
• She will save almost $38,000 in interest.

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Not Understanding Terms Of The Account Agreement

Banks and credit cards supply the terms and conditions of specific cards at the time the application is completed and when the card is issued. It’s important to know what these terms and conditions are before you use the card. Doing so will help you have a better handle on what’s expected of you from the credit card issuer, and it will also help you manage your spending habits better.

Using A Credit Card For Everyday Items

Another trap people often fall into is using their credit cards for regular, everyday purchases. Unless you follow a monthly budget and can easily pay your credit card balance in full each month, charging non-discretionary expenses on a credit card can be dangerous. By keeping common purchases like groceries and utility bills off of your credit card balance, you’ll take a major step in getting spending under control.

Consider that a $3 gallon of milk bought with a credit card will eventually turn into a $30 gallon if you don’t pay off the balance at the end of each month. There’s no reason to incur interest charges on necessary items that you should buy directly with monthly income with cash, check or debit card.

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