Paying your credit card bill on time is crucial for maintaining a good credit score and avoiding interest charges. But when exactly should you pay your bill each month? There’s actually some strategy involved in picking the best time to pay your credit card bill. In this comprehensive guide we’ll walk through the different factors to consider and when it makes sense to pay early vs. waiting until the due date.
Frequency of Entities
Credit card: 27 times
Payment: 16 times
Balance: 15 times
Interest: 13 times
Due date: 10 times
Grace period: 6 times
Credit score: 6 times
Debt: 5 times
Money: 4 times
Finance charge: 2 times
Minimum payment: 2 times
Annual Percentage Rate (APR): 1 time
Paying Early Can Lower Credit Utilization
One of the biggest factors in your credit score is your credit utilization ratio – how much of your total available credit you’re using. The lower your utilization, the better for your credit score.
Since credit card companies report your statement balance to the credit bureaus, making an early payment can lower your balance before it gets reported. This reduces your utilization and helps your credit.
Ideally you want to keep utilization below 30%. Paying early is an easy way to accomplish this especially if you have a large purchase one month.
For example, let’s say your credit limit is $5,000. You make a $3,000 purchase, so your balance is 60% utilization. If you pay $2,500 before the statement cuts, your balance is only $500, or 10% utilization. That looks much better to potential lenders.
Paying early also gives you more time to ensure the payment goes through before the due date. You avoid any risk of a late payment, which can significantly hurt your credit.
Paying Later Maximizes Your Money
While paying early can help your credit waiting until the due date allows you to hold onto your money longer. This gives you more time to earn interest in your bank account or invest it elsewhere.
As long as you pay the statement balance by the due date, you won’t owe any interest on purchases thanks to the grace period. So there’s no financial penalty to waiting.
For example, if your statement balance is $1,000, that money can sit in your checking account earning interest for almost a month before you have to pay the bill. Even a small interest rate can add up over time.
The exception here is if you carry a balance month-to-month. Then interest starts accruing immediately on new purchases, so paying sooner reduces what you owe.
Pay Down Debt ASAP to Minimize Interest
If you regularly carry a credit card balance, any new purchases start accruing interest right away. There is no grace period until you pay off the entire balance.
In this case, making payments as often as possible saves you money on interest charges. This is especially true for cards with high interest rates.
For example, let’s say you have a $2,000 balance on a card with a 25% APR. If you wait until the due date to make a $500 payment, you’ll pay nearly a month’s worth of interest on the remaining $1,500 balance.
But if you make two $500 payments two weeks apart, you’ve cut that interest burden in half. Frequent payments shrink the average daily balance used to calculate interest.
Paying down debt aggressively can make a big difference. On that $2,000 balance above, an extra $100 payment per month saves you $800 in interest and pays off the debt two years faster.
How Minimum Payments Impact Interest
Credit card companies require you to pay at least the minimum payment each month, usually around 2% to 3% of your balance. While this prevents late fees, it results in costly interest if you carry a balance.
For example, let’s say you have $5,000 balance at 17% APR and a 2% minimum payment. If you only pay the minimum of $100 each month, it will take over 17 years to pay off the debt. You’ll pay $5,714 in interest alone.
But if you pay $250 per month instead, you pay off the debt in just over 2 years and only $1,297 in interest. That’s $4,417 in savings!
This shows why you should always try to pay more than the minimum if possible when carrying a balance. Stretching out payments with minimums costs you big in the long run.
Should You Time Payments to Your Paycheck?
One smart strategy is aligning your credit card payment due date with the date you get paid. Many card issuers allow you to set a custom billing cycle end date.
Choosing a due date right after your payday ensures the money is there to pay on time. However, you still reap the same benefits of making an early payment to lower utilization before the statement cuts. This approach combines the pros of both early and late payments.
For example, you could set your due date to the 5th of the month and pay around the 25th once your paycheck hits. Just pay attention to when the billing cycle ends to make an early payment.
Bottom Line
When deciding the best time to pay your credit card bill each month, a few key factors come into play:
- Pay early to lower credit utilization and boost your credit score
- Pay close to the due date to maximize your money and cash flow
- Pay down balances aggressively to minimize costly interest charges
- Consider aligning due dates with paydays for an ideal payment schedule
As long as you pay on time and don’t carry excessive balances, you have flexibility in choosing a payment strategy that aligns with your financial goals. Monitor interest charges and credit score impacts to tweak your approach over time. Consistency and responsible usage are key to credit card success.
What Happens if You Don’t Pay Your Credit Card Bill
To give you an idea of how credit card interest is calculated, let’s say you had a $1,000 balance on a credit card with a 21% APR and you paid off $500 of the debt on your due date. To calculate your interest, the card issuer will divide your interest rate by 365, giving you a daily interest rate of 0.0575%.
Then, the card issuer will calculate your average daily balance from the previous month by adding up the ending balance for each day and dividing the sum by the number of days in the month. Let’s say your average daily balance was $575.
The card issuer will then multiply the average daily balance by the daily interest rate, then multiply that amount by the number of days in the month to give you your interest charge. For example:
$575 x 0.000575 = 0.330625
0.330625 x 30 = $9.92
That might not seem like a lot, but remember that new purchases are also accruing interest, and that interest compounds each day, becoming costlier every day. So, if you have credit card debt, making payments more regularly can be a great way to save money on interest.
Rule #4: To Pay Less Interest on Debt, Pay ASAP
Credit card users who always pay in full don’t need to worry about paying interest because of your credit card’s grace period. However, when you carry a balance from one month to the next—no matter how small—you’ll be charged interest for the previous month.
What’s more, you’ll also lose your grace period on new purchases until you pay your balance in full. In other words, new purchases will start accruing interest from the date of each transaction. So, while it may be convenient to wait until your due date to make a payment, that convenience can cost you.
BEST Day to Pay your Credit Card Bill (Increase Credit Score)
When should I pay my credit card bill?
If you carry a balance on your credit card from month to month, or if your balance regularly exceeds 30% of your credit limit, you might benefit from paying early. When is the best time to pay your credit card bill? At the very least, you should pay your credit card bill by its due date every month.
Can I pay my credit card bill on the due date?
You can pay your credit card bill on the due date if you’re doing so online or by phone, but some issuers have a cut-off time (such as 8 p.m.). If you’re mailing a check, ensure you do so well in advance of the due date to allow the issuer time to receive and process your payment.
When are credit card payments due?
Credit card payments tend to be due about three weeks after the last statement’s closing date, but you may have more time depending on your issuer’s policy. Note that there is typically a grace period in which you can make purchases on your credit card without incurring interest charges, provided you pay your bill in full by the due date.
When is the best time to pay your bills?
And the most convenient time for you can vary depending on when your paychecks come in, how much cash you have on hand and what other bills you need to cover on payday. Let’s say you get paid twice per month and your rent and utility bills are due at mid-month, while your credit card bill’s due date is at month’s end.