When you get your credit card bill, you usually have less than a month to pay it. Many people are okay with doing the bare minimum and paying the bill before the due date. However, people decide when to pay credit card bills if they want to improve their credit score and minimize interest charges. People who clear their credit card bill every month and don’t exceed 30% of their limit are fine so long as they don’t exceed the due date. However, if you use more than one-third of your credit limit and carry your balance beyond one month, you could benefit from paying earlier.
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You might assume that the best time to pay your bill is immediately or as soon as possible, but that’s not always true. In some situations, if you are considering when to pay credit card bills, you must consider various factors like your financial situation. Which is the best strategy to decide when to pay credit card bills?
Strategy #1: Pay On Time and in Full
Regardless of their circumstances, the most appropriate time for most people to pay their credit card bills is before the bills are due. There is an enduring myth that it is a good idea to carry credit card debts beyond the billing period. People who choose when to pay credit card bills to improve their credit should ignore that myth. The best thing you can do for your credit is to clear your dues consistently and on time.
It is usually expensive to carry a balance beyond one month. Even though it’s nice to have money to spend before you get your next paycheck, credit cards are not the best way to borrow money beyond one month. The credit card interest rate is a crucial determiner of when to pay credit card debt because it often exceeds 15%. One of the best rules of thumb with credit cards is to keep them low enough to repay them reliably.
To ensure your credit card bills stay low is easier said than done. Most U.S. adults carry credit card debts exceeding $5,500. Even responsible spenders have difficulty keeping their bills manageable. People, therefore, usually find themselves in a race to do the bare minimum to escape penalty fees.
Strategy #2: Pay Early to Reduce Interest
One of the most compelling reasons about when to pay credit card debt is that it reduces your interest. It also ensures that you keep your spending within manageable limits. By paying your credit card debt before the due date, you maintain your grace period and therefore don’t have to pay any interest.
If something prevents you from paying the statement balance during the month, pay it as soon as possible to reduce your interest cost. The interest that you pay often depends on your average daily balance, as demonstrated below:
Let’s assume you start a billing month with a balance of $1,000. If you pay $400 at the end of the month, you will have maintained a $1,000 balance for 29 days and $600 on the final day. Your average daily balance is $987. On the other hand, if you pay $400 on the fifteenth, your average daily balance will be $800. Therefore, you will pay a lower interest rate (10% instead of 12%).
Importance of the Due Date
No matter which date you pay your bill, ensure that you pay it before its due date. If you don’t pay it in time, your credit card issuer has two options.
The second reason to consider when to pay credit card bills is to prevent damaging your credit. In many cases, your issuer might report you to the credit bureaus if you are more than a month late. These reports could significantly damage your credit because your payment history is the quickest way to make or break your credit score. Remember that late payments will taint your credit for up to seven years. Therefore, it is crucial to do everything possible to avoid missing your monthly obligation.
A Quick Breakdown of the Credit Card Billing Cycle
If you are wondering when to pay credit card bills, you should remember that issuers operate on monthly billing cycles. There are three main dates you should know about when to pay credit card debt:
1. The statement date: For one day each month, your issuer puts together your entire credit card activity and creates a statement. This date is called the closing date or statement date. Any transaction beyond this date goes into the next month’s report.
2. The due date: After getting your statement, you should pay a minimum amount by a given date. The deadline is the due date of when to pay credit card bills. The date is around three weeks after you get your statement. You will pay a late fee if you don’t pay the minimum amount by the due date.
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3. The reporting date: This is the date you should be most worried about if you are contemplating when to pay credit card bills. Your credit card issuer reports your balance to credit bureaus on the reporting date. No issuer mentions the reporting date in your statement. You can assume it is any day after the statement date.
Tips on How to Manage Your Bill
Besides tracking your credit utilization to start paying when it gets high, you can do the following things to avoid surprises:
- Keep a budget to prevent runaway spending.
- Sign up for SMS or email alerts for notifications from your issuer regarding your balance and important dates.
- Contact your issuer to change the due date if it no longer coincides with your income schedule.
- Review statements immediately to find and report unauthorized charges.
- Create automatic payments to avoid missing payment due dates.
There are many factors to think about when paying your credit card bills. Moreover, when to pay credit card debts differs depending on your circumstances. The most important takeaway is don’t be late because it might affect your credit and cost you in the form of additional interest.