When You Should Make A Credit Card Payment
Youll be in good shape if you can pay off your credit card by the due date, especially if you pay your entire balance. Paying at least part of your bill before the closing date could be even better if you want a good credit score.
But the best time to make a credit card payment may be whenever your credit utilization ratio exceeds 30%. By tracking your credit utilization ratio and keeping it as low as possible, you can protect your credit score. And you wont have to worry about remembering the date when your credit information will be reported.
To calculate the credit utilization ratio for an individual credit card, you can take your credit card balance and divide that number by your credit line. Then multiply that number by 100.
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Balance Transfer Your Existing Credit Card Balance
Make sure you pay off your debt before the 0% introductory deal ends, otherwise you might have to pay a high rate of interest on the remaining debt.
One option for borrowers with existing credit card debt is to move it to a 0% balance transfer credit card.
These cards offer a period in which no interest will be charged on that debt. This means every penny of your repayments goes directly towards reducing the size of your original debt.
Youll usually need to pay a fee to transfer your debt over usually around 3% of the balance transferred . So if your outstanding balance is £1,000, it could cost you £30 to switch.
These cards are usually only an option if you have a good credit rating.
If you dont qualify for a 0% deal, look for a card with as low a rate as possible . But remember to look at the balance transfer interest rate, not the APR .
Find and compare balance transfer cards on the MoneySavingExpert website
When Might It Make Sense To Only Pay The Minimum
1. Paying off the balance would cause financial hardship
Life happens, and some months you might not have the funds to pay off your credit card. Maybe you earned less than expected, you want to use your extra money for something else, or youre experiencing a financial emergency. Baez points out, for example, that millions of consumers are shifting to an emergency budget during the coronavirus pandemic.
This COVID-19 situation throws a wrench in everything, she says. People are concerned about their rent and food. Now the funds they were using to aggressively pay down debt are put on hold.
Make sure you have enough money to pay all your bills. If theres anything left over, you can decide whether to use it to pay down your credit card.
2. You plan to tap your savings account
Many financial experts recommend keeping an emergency fund with three to six months worth of living expenses stashed away. This can help you survive financial emergencies such as a job loss.
If you have both a healthy savings account and credit card debt, it could be tempting to simply use your savings to pay off your cards. But doing so could leave you vulnerable to financial emergencies. Without savings, you might not have enough funds to weather an unexpected crisis.
Instead, Baez recommends paying the minimum until you can create a plan that allows you to keep your emergency fund and gradually pay down your credit card debt.
3. You have a 0% APR on purchases
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The Problem With Credit Card Interest
Meanwhile, there’s reason to expect an uptick in consumer interest rates across the board this year, and that extends to credit cards. After not raising interest rates for several years to allow the U.S. economy to recover from the financial blow of the pandemic, the Federal Reserve has made it clear that it intends to start raising interest rates this year.
This doesn’t mean the Fed gets to dictate what interest rates your credit cards charge you. The Fed doesn’t actually set consumer interest rates at all, so it has no say in the rate you lock in on a mortgage or the interest rate your savings account pays you for keeping your money there. Rather, the Fed decides what interest rates banks impose on one another for short-term borrowing.
But the Fed’s decisions tend to influence consumer interest rates. And because the Fed is planning to raise rates, there’s a good chance borrowing via a credit card balance will get even more expensive as 2022 chugs along. That’s why it really pays to chip away at your existing debt quickly if you can.
When It Doesnt Make Sense To Pay Off Your Credit Card Weekly
If you usually pay off your credit card in full at the end of every month, youre probably not keeping a balance on your credit card. If you are not keeping a balance on your credit card, this means that youre not paying interest, and therefore you may not have a good reason for making weekly or multiple credit card payments per month. This is so because credit card issuers provide an interest free grace period, which lasts until your next due date date. So, youre not saving money on interest.
Nevertheless, if you want to make weekly card payments to avoid getting into your debt and to stay on top of your spending, there is nothing wrong with doing. So, if youre someone who uses credit cards as merely a payment tool and not a debt tool, this is great because youre benefiting from the rewards that your credit card has to offer without racking up debt and losing money on interest fees.
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Use The Credit Card As A Budgeting Tool
If youre confident you can use a credit card responsibly and pay off the balance every month, try using it as a budgeting tool. By making all of your purchases with your credit card, you can see exactly how much youve spent at the end of the month. Of course, you should only do this if you know you can pay off the balance each month. To make sure your credit card spending doesnt get out of hand, never charge more to your card than you have in your bank account.
Other Credit Card Tips
Staying on top of credit card payments is a simple matter of being vigilant about your spending and putting aside the money to pay your bill every month. The best option is to put your monthly payments on autopay so you’re not late.
Paying more than the minimum payment due every month is recommended so you can minimize interest charges. Paying the entire balance every month will eliminate interest charges completely. If you make sure you pay the entire balance every month, you’ll be able to control your spending and only use credit cards when necessary.
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Know How Your Credit Score Is Calculated
The FICO Score is the most commonly used credit score that most lenders refer to and is made up of five key components:
- Payment history is determined by how often you pay on time and how reliable you are as a borrower.
- is the ratio between how much you borrow to how much is available to you .
- Length of credit history is how long you’ve used credit the longer, the better.
- New credit is how often you apply for credit products or loans, and what percentage of your credit comes from recently opened accounts.
- is how many different types of credit you use.
FICO Scores range from 300 to 850, and the average score is 701. It takes time and patience to build your credit score. Since the length of credit history determines 15% of your score, it’s a good idea to start early and learn how to manage your credit properly.
Does Paying Off Credit Cards Slowly Help My Credit Score
It’s an oft-repeated credit myth that carrying a credit card balance helps your credit scores. In reality, high balances on revolving credit accounts can mean high credit utilization, which can hurt your credit standing.
Your is a comparison of your credit card balance to your total credit limit, expressed as a percentage. It’s the second most important factor in your credit score calculation, making up 30% of your FICO® Score. To calculate it, divide your total credit card balances by your total credit card limits. The lower the ratio is, the better for your credit health. Keep it under 30% to avoid hurting your scores experts suggest keeping it under 7% for the best scores.
The effect credit utilization has on your credit scores is a strong argument for paying off your credit card balances every monthbut it’s not the only one. Carrying a balance can cost you heavily in interest.
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How To Use A Credit Card: The 4 Principles To Master
You should always handle credit cards with extreme care. Unlike debit cards, you’re making purchases on credit meaning you’re 100% liable for paying back everything you charge to your credit card. If you aren’t careful, you can end up in a lot of debt.
There are four main principles to becoming a credit card master. If you take away anything from this guide, you should always follow the first rule pay your bill on time and in full every single month. This strategy alone will help your personal finances tremendously.
If you’d like to learn other ways to maximize your credit card use, read on for the best practices for managing your credit card.
Should You Leave The Account Open
Leaving a paid account open can benefit your credit score under certain circumstances. Consider leaving the account open if it’s the only credit card that has available credit. Having this card is helping your overall credit utilization, which makes up 30% of your credit score.
You should also keep the account if it’s your only credit card as long as you use it responsibly. You should also understand that your credit score benefits from having a mix of accounts on your credit report. That means that your paid-off credit card might help your credit score when combined with loans as part of your active credit history.
Some credit card issuers close credit cards that go unused for several months. To keep your account open, be sure to use it periodically. Occasionally, make a small purchase on the cardevery three or four monthsand pay off the balance right away to keep it active and open.
Otherwise, if you have a pretty high credit score and other credit cards that have been open, especially for longer, closing your paid credit card won’t likely hurt your credit score much, if any.
If you’re planning to apply for a mortgage loan soon, don’t close any credit cards, since it’s impossible to predict with 100% accuracy how that action might affect your credit score.
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When You Should Pay Your Credit Card Bill
One of those is to make several payments throughout the month. Another is to immediately pay off large purchases. Both are valid, but remember that however you decide to make your payments, the most important thing is to be sure payments in full are received by the date theyre due each and every time.
If youre planning to apply for new credit within a few months, remember a very large purchase can affect your score quickly by increasing your credit utilization. In that case, paying off that purchase immediately might be the prudent thing to do. You will have the money available, right?
Avalanche Method: Pay Highest Apr Card First
Paying off your credit card with the highest APR first, and then moving on to the one with the next highest APR, allows you to reduce the amount of interest you will pay throughout the life of your credit cards.
This method will rid you of your balances slightly quicker than the snowball method, but the principle is the same: You calculate a monthly payment in the same fashion pay off your highest APR credit card, and then add that first card’s monthly payment amount to the minimum payment due on the next card in line, to determine its monthly payment amount. Pay that off and repeat, until you’ve reduced all of your credit card balances to zero.
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Paying Down Balance Faster
Making weekly payments can be a great way to force yourself to pay down your credit card balance faster. This is so because getting into the habit of allocating money to pay off your credit card weekly encourages you to pay down your balances faster. Repeatedly seeing your balance decrease is a great motivator for you to allocate more funds to pay down your credit card weekly.
When You Should Change Your Bill Due Date
If you struggle to have cash on hand when your due date rolls around, most card issuers allow you to change the day your payment is due. This allows you to select a day that works best for you , which could help you make full payments every month.
On the other hand, if you can’t pay in full because of overspending, consider cutting back on non-essential expenses, such as streaming subscriptions or gym memberships.
And if you’re falling behind on payments because of a temporary layoff or cut-back on your working hours, you may want to consider using a 0% APR card so you can pay off debt over time with more flexibility on when the entire balance is due.
Cards like the Chase Freedom® and Wells Fargo Cash Wise Visa® card can help you finance new purchases without interest for 15 months . Keep in mind that these cards require good or excellent credit. And while they can help you temporarily avoid interest charges, you’ll still need to make minimum payments during the no-interest period.
Information about the Chase Freedom® and Wells Fargo Cash Wise Visa® cardhas been collected independently by Select and has not been reviewed or provided by the issuers of the cards prior to publication.
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‘tricking’ Yourself Into Paying More
If you created a steady repayment plan for yourself, a quirk of the calendar means youll pay more overall if you pay more often. Say youre paying $400 per month toward your credit card balance. Instead, try paying $100 per week.
Isnt that the same thing? It would be if the year consisted of 12 months of four weeks each. But a year has 52 weeks. Paying $100 per week instead of $400 per month means youll pay an extra $400 annually toward debt.
Focus On Paying Down Card Debt Not On Earning Points Or Cash Back
Earning cash back, points and miles on everyday purchases and redeeming them for free trips or the newest smartphone is every savvy cardholder’s dream. But if you’re carrying a balance on your credit cards and keep charging expenses you can’t pay at the end of the month for the sake of earning points, you need to stop immediately.
Here’s why. As I mentioned before, the current average interest rate is above 16%. Some of the best credit cards earn up to 6% back in rewards per dollar spent on specific categories, like grocery store purchases or airline tickets. However, most of the best flat-rate cash back cards earn no more than 2%. Any cash back, points or miles earned will be easily wiped out by interest if you don’t pay for your purchases in full when your statement is due.
If you carry a balance, there’s a way to put those hard-earned cash-back dollars to good use. Use them to lower the balance on your card instead by redeeming them for a statement credit.
Understanding Credit Card Grace Periods
Most credit cards have whatâs known as a grace period. Itâs the time between the end of your billing cycle and the date your payment is due. And it can give you some breathing room between when you make a purchase and when you have to start paying interest.
A grace period is usually between 25 and 55 days. If your card has a grace period, different factors might impact whether it applies to a purchaseâlike whether youâve paid your previous balance in full by the due date each month.
You can check your credit cardâs terms and conditions to see if your credit card has a grace period.
Understand Cash Back Vs Points Vs Miles
Next, you should consider which types of rewards you’re looking for. There are three main types of rewards currency: cash back, points and miles. It may make sense to earn points and miles through travel rewards cards if you like to travel. If you prefer to earn cash rewards, look at cashback cards instead.
Below, we’ve hand-picked our favorite beginner rewards credit cards that are easy to use and offer excellent returns:
|Rotating categories||$0||5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. Enjoy new 5% categories each quarter! Plus, earn 5% cash back on travel purchased through Chase Ultimate Rewards®, 3% on dining and drugstores, and 1% on all other purchases.|
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