Paying your credit card balance before your billing cycle ends can be beneficial in the short term and long term. It'll prevent you from missing a payment, help you avoid expensive interest charges, increase your credit limit and improve your credit score faster.
DON'T reach your credit limit or “max out” your cards. DON'T apply for more credit cards if you already have balances on others. DON'T ignore the warning signs of credit trouble. If you pay only the minimum balance, pay late or use cash-advances to pay daily living expenses, you might be in the credit danger zone.
Only Paying the Minimum Balance
Don't do it. High-interest rates charged by credit card companies will keep the bill growing every month. Instead, send the highest payment you can afford and reduce spending in other areas to focus on paying off the debt.
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.
When you pay your full credit card balance off early -- whether that's before the billing cycle ends or before your statement's due date -- you won't be hit with interest charges on the purchases you make. Just remember that you have to pay the full statement balance to avoid interest each month.
Ultimately, the most efficient approach may be to tackle the credit card with the highest interest rate first, while still making minimum payments on the other card. Once the higher-interest card is paid off, you can then direct your focus and available funds toward the second card.
Not only does that help ensure that you're spending within your means, but it also saves you on interest. If you always pay your full statement balance by the due date, you will maintain a credit card grace period and you will never be charged interest.
Pros of paying your credit card off in full
You'll avoid paying interest if you pay your credit card balance off in full each month by the due date. Establish a better credit score: Using your credit card and repaying your balance will help you establish a good payment history.
Some financial experts suggest you pay off credit card debt starting with the smallest balance first. This shows you immediate success and helps create momentum. Other experts recommend paying off credit cards with the highest interest rate first – which saves you money in accrued interest.
With careful use, credit cards can help you build your credit and accumulate valuable benefits and rewards. Plus, you'll enjoy protection against unauthorized charges. However, interest rates are high, and if you don't pay on time and in full you can accumulate debt and even hurt your credit score.
It's generally recommended that you have two to three credit card accounts at a time, in addition to other types of credit. Remember that your total available credit and your debt to credit ratio can impact your credit scores. If you have more than three credit cards, it may be hard to keep track of monthly payments.
Frequent mistakes made by credit card users include not paying credit card bills on time or in full monthly, accumulating too much credit card debt, applying for and using the wrong credit cards, exceeding their card limit and opening or closing too many cards within a short window.
Minimum monthly payment.
Paying only the minimum is a debt trap because it can take years to repay a sizable balance that continually accrues interest. Tip: If you can't pay your monthly balance in full, pay as much as you can above the minimum.
The Takeaway
The 15/3 credit card payment rule is a strategy that involves making two payments each month to your credit card company. You make one payment 15 days before your statement is due and another payment three days before the due date.
While you don't want to carry any balance, make sure you're still using your credit card regularly — at least on small charges. Otherwise, your credit card issuer can potentially close your account after months or years of inactivity.
Aim to pay off your balance every month
If you don't pay your balance by the due date, you'll pay interest from the date you made the purchase. The interest you pay will increase the cost of everything you buy with your credit card. Paying your balance each month shows lenders that you're a responsible borrower.
Paying only the statement balance still lets you dodge interest until the next billing cycle. On the plus side, you keep more cash on hand and have more time to finance your purchases, thanks to your grace period.
With the 15/3 rule, you make two payments each statement period. You pay half the credit card balance 15 days before the due date and the second half three days before the due date.
If you make your payment shortly before your statement date, it could help reduce your credit utilization, which can help you increase your credit score or maintain good credit. That said, if the card issuer reports a zero balance every month, that could negatively impact your credit score.
The Consumer Financial Protection Bureau (CFPB) says that paying off your credit cards in full each month is actually the best way to improve your credit score and maintain excellent credit for the long haul.
Under normal economic circumstances, when you can afford it and have enough disposable income to exceed your basic expenses, you should pay off your maxed-out card as soon as possible. That's because when you charge up to your credit limit, your credit utilization rate, or your debt-to-credit ratio, increases.
If you're close to maxing out your credit cards, your credit score could jump 10 points or more when you pay off credit card balances completely. If you haven't used most of your available credit, you might only gain a few points when you pay off credit card debt.