When you make a credit card purchase, you do it with the understanding that you’ll repay that purchase. Depending on your credit card agreement and the type of credit card you're using, you can either pay the balance back all at once or over time.
Each month, when you sit down to pay your bills, you have to decide the best amount to send your credit card issuer—whether it's the minimum payment, the full balance, or something in between. It's important to put some serious thought into how much you're paying rather than coming up with an arbitrary number.
Paying the Full Balance Is Best
Ideally, you should pay your balance in full every month, and there are a few benefits to doing it this way. First, you can take advantage of your credit card’s grace period and avoid paying interest on the balance. Second, you never have to deal with credit card debt. Lastly, paying your balance in full leaves your credit limit open and available for new purchases.
When you don’t pay your full balance, you’ll have a finance charge on your next billing statement representing the cost of carrying a credit card balance. The longer it takes to pay off your balance, the more you’ll pay in interest.
The Minimum Payment Is the Least You Should Pay
Unless you have a charge card, your credit card issuer won't require you to pay your balance in full each month. Instead, you'll have the option of making smaller, monthly payments each month until the balance is repaid in full.
At the very least, you should pay the minimum on your credit cards every month. The minimum payment is necessary to avoid paying a late fee on the card and to avoid a late payment on your credit report.
If you can’t pay the minimum, you should contact your credit card issuer and make other arrangements. You may be able to delay your credit card payment with no penalties or enter a hardship agreement if you're having financial troubles.
When You Can’t Pay in Full
In between the most (full balance) and least ideal (minimum) credit card payment amounts is the amount you can afford to pay toward your balance. Review your income and expenses and decide how much you can realistically put toward your balance without straining yourself financially. Anything above the minimum will help reduce your balance, allow you to pay less interest, and help you pay off your balance faster. The more you can pay toward your credit card balance, the better.
When You’re Paying Off Debt
When you’re paying off several credit cards at one time, combine these strategies by paying as much as you can on one credit card and the minimum on all the other credit cards. Once you've paid off one card, take that payment and add it to what you've been paying on another card. This is the most effective way to get rid of your credit card debt. You’ll eliminate your balances one at a time, but it’s better than paying just a little toward your debts each month and much better than just paying the minimum on all your accounts.
You can also use a credit card repayment calculator to help you decide how much to pay toward your credit card balances. Most calculators will show you a monthly payment schedule based on either the total payment you can afford or the date you want to be debt-free.
Think About Your Credit Score
While your credit card payment doesn't directly impact your credit score, it can influence your score, and your recent payment amount may be reported to the credit bureaus. Your credit card payment does influence your credit utilization, which is the ratio between your credit card balance and your credit limit. Credit utilization is an important factor when it comes to your credit score. The best credit scores belong to consumers with the lowest credit utilization, typically below 30%.
As you decide what credit card payment to make, think about how much is necessary to bring your credit card balance below 30% of the credit limit.
The Bottom Line
Here’s a rule of thumb for deciding your credit card payments: pay the full balance or as much of the balance as you can afford. If you’re trying to pay off several credit cards, pay as much as you can toward one credit card and the minimum on all the others. But, if you’re struggling and can’t afford to pay much, make at least the minimum.
Frequently Asked Questions (FAQs)
What happens if you miss a monthly credit card payment?
If you're one day late on your payment, you'll have to pay a late fee. As long as you pay your minimum balance before you're 30 days past due, the late payment won't affect your credit, but your credit card issuer will begin charging interest against your outstanding balance. Once you're more than 30 days overdue, your credit card issuer will report the late payment to the credit bureaus, which will hurt your credit score.
How is my minimum payment calculated?
Credit cards have various methods for calculating your monthly payment, and it's usually based on your account balance and interest rate in some way. In some cases, this is a flat rate—usually $25 to $35—but it may also be between 1% and 4% of your balance.
How do I pay my credit card bill?
Your credit card issue will offer several options for paying your balance. You can usually set up an online account and pay via web or mobile app. Or you can pay over the phone or through the mail with a check. Contact your card issuer's customer service for more information about how to pay your bill.