Five Principles of Making Credit Card Payments

You should always make at least the minimum payments on your credit cards, no matter what. Your payment will be considered late if you pay less than the minimum or miss your minimum payment. Late payments come with a few consequences. Not only will you be charged a late fee, but your interest rate also might rise (especially if you're 60 days delinquent), making it more expensive to carry a balance.

After 30 days with no payment, your delinquency is reported to the credit bureaus, added to your credit report, and factored into your credit score. A single late payment in your entire credit history might not do much damage, but the more delinquencies you have, the worse the effect on your credit score will be.

You should get caught up on any accounts that are behind as quickly as possible. Until you get caught up, you'll continue to rack up late fees and delay the amount of time until your interest rate goes back down.

These delinquent bills will stay on your credit report and hurt your credit score until you've paid off the past due balance.

If you have any extra money in your budget after making the minimum payments on all your cards, put it all towards bringing your accounts current. If you're late for 180 days or more, your creditor might charge-off your account, refer it to collections, or both. At that point, you'll lose your purchasing ability and you'll no longer have the option of making monthly payments on your credit card.

Any time your credit cards go beyond your credit limit, it raises red flags to current and future lenders. It causes them to wonder if you can responsibly handle credit. You may be charged an over-limit fee if your credit card charges this fee and you've opted-in to having over-the-limit transactions processed.

After paying the minimum and getting caught up on past due balances, put your leftover funds toward reducing maxed-out balances. Lowering your balance also will help your credit score.

To maintain a good credit score, you should keep your balances closer to $0. Focus especially on balances that are close to the credit limit. High credit card balances increase your credit utilization and hurt your credit score. Keeping your balances low shows that you can handle credit responsibly and will help improve your credit score.

A good rule of thumb is to keep the total of your balances to no more than 30% of your combined credit limits.

If you want to get out of debt quicker, you should first focus on paying off credit cards that have high interest rates. Since you pay more in finance charges on high-interest-rate credit cards, it's wisest to pay those balances off quicker to minimize the amount of interest you pay.

After you've met the minimum payment on your other accounts, put a lump sum payment toward your balance with the highest interest rate until it's paid off.

Of course, if your goal is to get out of debt completely, you should evaluate your credit card interest rates along with the interest rates of your other debt.