It can be hard to decide which strategy is best for you when it comes to paying off credit card debt. Having multiple accounts and varying interest rates can make it hard to know which one is right for you.
One strategy that’s generally recommended is to prioritize the highest interest rate over the lowest one. Doing so shall allow you to save more money and make more progress on your financial goals. However, in some cases, it’s also beneficial to pay off the debt with the lowest balance first.
One of the most important steps that you can take to pay off your credit card debt is to clear it every billing cycle. Doing so will allow you to show lenders that you’re a responsible borrower and keep your costs low.
According to the experts at SoFi, “You have an idea of what your interest rate is, but by the time you’ve paid off your credit cards, you may be shocked to see how much those interest payments have added onto your bill.” When you calculate credit card interest you pay each month, you may not like how much you are spending just to borrow money from a lender. Instead, you could reap many benefits from paying your card balances off in full each statement period.
Benefits of Paying Off Your Credit Cards Each Month
1. No Interest Fees
If you have a balance over the next payment period, then your credit card company will charge interest on top of the amount that you’re already paying. This can quickly add up to a huge amount of money.
If you’re able to pay off your credit card debt each month, then you’ll no longer have to pay interest. An interest-free introductory offer can be obtained with a balance transfer card. However, this offer is only available for a limited time.
2. A Grace Period to Pay for New Purchases
A grace period can be obtained when you start using a credit card with a $0 balance. This period usually lasts for 21 to 25 days, giving you plenty of time to clear the balance before it gets charged with additional fees or interest.
The only exception to this rule is when you make purchases with a cash advance. Other types of transactions, such as purchases with a balance transfer, can start to accrue interest immediately.
3. Manage Repayments Easier
If possible, avoid making minimum payments on your credit card. Usually, the interest rate charged by the card company is 2% to 5%. This means that it could take you decades to pay off all of your debt.
Getting the full amount of your credit card debt paid off each month can make your payments easier and reduce the amount of money that you spend on interest. If you can’t pay off the entire debt, try to pay as much as possible.
4. Possible Extension of Your Credit Limit
Getting the balance cleared each month will help your credit card company see that you’re capable of managing your debt. They may even allow you to increase your limit.
An increase in your credit limit can provide you with more financial flexibility. However, before you can request to increase your limit, make sure that you can afford the higher monthly payments.
5. Increase in Credit Score
Getting the full amount of your credit card debt paid off each month can make your payments easier and reduce the amount of money that you spend on interest. Having a good payment history is also one of the biggest factors that can affect your credit score.
There are many benefits of paying off your credit card balances each month. Keeping your balances low can help you reduce the amount you spend on interest and allow you to have better control of your financial situation.
