Should You Pay Off Your Credit Card Balance Every Month?

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American consumers rely on their credit cards for multiple reasons, whether it’s to build credit, be prepared in case of emergencies, accumulate travel perks or help with large purchases.

But when it comes to paying balances — the total amount of debt accumulated each month — there is one clear consensus among experts: Whatever your reason for using a credit card is, you should pay your balance in full each month, if possible.

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Consumers seem to understand this, as a new GOBankingRates survey shows that 37% of Americans say they handle their credit card debt by paying it off completely every month. In addition, 19% say they pay more than the minimum but never the full balance, while 11.8% pay just the minimum and 5% have a set amount they pay each month. Here are some of the reasons experts say paying off your balance each month is a good idea.

Prove You Are Reliable and Save Money

First, paying your balance in full shows lenders you’re a responsible consumer and living within your means. In turn, this might help with lenders extending better borrowing terms or increasing your credit card limit, for example. A credit card limit is the maximum amount you can spend on your credit card; it can start at a few hundred dollars and go to tens of thousands of dollars, depending on criteria such as payment history, current accounts, account history, debt and income.

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Of course, a key point is that paying your balance in full every month will help you dodge interest fees, hence saving you money and enabling you to better plan your financial future.

To put this into context, it’s important to know that the average interest rate is 18.38% — the highest since 1992, according to Ted Rossman, a senior industry analyst at CreditCards.com.

“I think it’s really important to pay your credit card balance in full each month,” Rossman said. “If you only make minimum payments at 18.38% toward $5,270 — the average credit card balance, according to TransUnion — you’ll be in debt for 195 months and will owe $6,687 in interest. It’s hard to build wealth when you’re paying that much to the credit card company.”

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Interest Rates Are Rising

The sentiment is echoed across the industry. With inflation at a four-decade high, the Federal Reserve has hiked interest rates multiple times this year, and experts say consumers should be even more cautious about their balances — and their increasing interest fees.

Indeed, a New York Fed report notes that credit card balances rose 13% in the second quarter of 2022, compared to the second quarter of 2021– the largest increase in more than 20 years.

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Bobbi Rebell, personal finance expert at Tally, noted that, with average credit card interest rates at all-time highs, carrying debt is increasingly expensive.

“If you pay your balance slowly — for example, making minimum payments only — it could take years to pay off,” Rebell said, adding that you might pay hundreds of dollars in interest over time, money that could be going toward an emergency fund or savings.

Rebell added, “Don’t forget, too: Paying interest can offset or even completely negate the value of any rewards you’ve earned making purchases with your credit card.”

Give Your Credit Score a Lift

Another crucial point is that paying your balance in full may help boost your credit score. But, if you can afford only the minimum, be sure to do that, said Margaret Poe, head of consumer credit education at TransUnion.

“This will prevent you from racking up costly late fees,” Poe said, “and having the lender report a missed or late payment to the credit reporting agencies, which can have a negative impact on your credit score.”

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Poe explained that your credit utilization — how much of your available credit you’re using — is an important factor in calculating your credit score.

“In general, the lower your utilization is, the better it is for your score. Aim to keep your utilization rate below 30% if you can,” Poe said, adding that given the potential impact on your credit utilization carrying a balance can negatively affect your score.

Travis Forman, owner and financial advisor at Strategic Private Wealth Counsel, agreed, saying that carrying a high balance can affect your credit utilization rate.

“A high credit utilization rate indicates your inability and/or choice to make scheduled payments, which in turn may lower your score,” Forman said. “While failing to pay off your full credit card balance every month may not change your credit score too much, especially if you leave a small balance, it is still better to pay your credit card balance in full.”

There is another important point regarding your credit utilization ratio, which is usually reported on your statement date: Even if you pay in full, you might have a high utilization ratio if you use the card a lot, Rossman noted. He said a good fix is to make an extra mid-month payment or two to knock the statement balance down before it even comes out.

“Another option is to request a higher limit,” he said. “In any case, you don’t get bonus points for carrying a balance. That just costs you money in interest fees.”

A Balance Does Not Help Your Score

Several experts also noted that consumers should be extremely wary of the myth that keeping a balance might help their credit scores.

Indeed, it’s a common misconception that leaving a small balance when making your credit card payment after each billing cycle will help your FICO credit score, and the logic behind this is that having no balance will result in your credit card issuer reporting a net-zero balance and not reporting your on-time payment, Tally’s Rebell said.

“This is a myth, as paying your balance in full still counts as a payment,” she said. “You’ll get an on-time mark on your credit report, which can help build credit, as your payment history makes up 35% of your FICO score. Payment history is the most important factor in your credit score.”

Finally, are there any cons for paying the balance in full?

According to Vadim Verdyan, head of advice operations at Albert, the only thing that can come close to a negative is the potential loss of liquidity if your credit card balance has become really high.

“If you have to pull from savings or draw down your checking to pay it off, this could significantly bring down your liquid assets,” Verdyan said, “Still, this far outweighs the interest costs you’d pay each month if you carried that big balance.”

TransUnion’s Poe agreed, saying there are no downsides to paying your credit card balance in full each month.

On the contrary, Poe said, “Doing so is a smart financial and credit-building habit.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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