If you’ve ever been in credit card debt, you know it’s a hard hole to dig yourself out of. So if you have the opportunity to pre-emptively pay more than you currently owe on your credit card, should you?
While there’s no clear-cut answer, here’s a look at some of the pros and cons of overpaying your credit card balance.
Why You Might Want To Overpay Your Credit Card Balance
While there are no inherent advantages to paying more than you owe, there are some scenarios in which you may want to do it anyway.
“Overpaying your credit card balance doesn’t have a huge impact on building or hurting your credit score. However, it can serve as a clever way to push yourself to save,” said Joe Camberato, CEO of National Business Capital. “For instance, let’s say you’ve got a big expense lined up and you want to get a jump start on covering it. While it might not be the ultimate strategy, it’s a method to secure some savings for a short span.”
Anything above what you owe will be applied to your next credit card statement, so this can help ensure you won’t come up short if you have a big purchase coming up.
Why You Shouldn’t Overpay Your Credit Card Balance
In most cases, it does not make financial sense to overpay your credit card balance.
“If a cardholder overpays, and there is a positive balance on the card, the credit card issuer has funds in an account and is holding a cardholder’s money with no advantage to the cardholder,” said Karl Kaluza, vice president at Member Access Processing, an aggregator of Visa card services for credit unions. “A positive balance on a card is not earning interest, as [it would in] a savings account or [in] many checking accounts.”
Kaluza said that even if you anticipate making a large purchase on your credit card in the future, it’s still typically the better choice to not overpay your balance.
“The cardholder may feel it is better to have the funds already in place in the credit card account to cover the expected amount. However, credit card issuers do not charge interest on a charge for 30 days,” he said. “That should be enough time to transfer funds from an interest-bearing account after making the purchase.”
Kaluza said that any money you would use to overpay the balance is better off being kept in an interest-bearing account.
“Consumers who have cash on hand have the advantage of putting that money in accounts that earn interest,” he said. “They should not put that money in an account with a credit card company that does not earn them interest, even if they know they have a large purchase amount coming up.”
The Bottom Line
Whether or not you should overpay your credit card balance really comes down to your own preferences and behaviors. If you know you are someone who will not be able to set enough money aside to cover a large future purchase, it might make sense to overpay your balance.
However, if you tend to be financially responsible and know that you will be able to pay for a future large purchase when that time comes, it’s probably better to keep those funds in an account that earns interest.
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