Credit card bills can become confusing especially for new credit card users. If you’re looking at what is the best way to pay your credit card bill each month or how to pay off your credit card debt, this post will help you.
The best way to pay your credit card bills is by paying the full balance before the due date. This way, you’ll eventually improve your credit score and you’ll avoid late fees and paying interest rates. If you can’t afford this, try to pay at least the monthly minimum required payment for each card. It doesn’t matter if you use cash, money transfer or check to pay off your credit card bills.
To start working on paying off your credit card debt while improving your credit score, you can use the “Snowball” or “Avalanche” method (more details below).
Your credit card monthly payments options
`When it’s time to pay your credit card bills you have the following options:
- Pay the minimum required amount
- Pay the statement balance
- Pay a custom amount
- Pay the full balance
Pay the minimum required amount
If you can’t afford to pay your balance at the billing cycle’s end, you should try to pay at least the minimum required amount. This way, you’ll avoid paying late fees or higher penalty interest rate.
Also, paying the minimum amount due will help you maintain your credit score. However, you’ll accrue interest rates on your current balance.
Keep in mind that if you delay making a payment more than 30 days, it will hurt your credit score. Further, a late payment entry will appear on your credit report for up to seven years. It’s less effective as time passes though.
Pay the statement balance
This is the recommended way to pay your credit card bills every month. Of course, you have to pay them on-time. It will help you avoid any late fees and paying interest rates. If you can afford it, it’s a good idea to set up auto-payments on all your credit cards before the due date.
Payment history is the most important credit scoring factor. Making full on-time payments is the best thing you can do to improve your credit score.
Pay a custom amount
You can pay a custom amount when you can’t pay the statement balance at the end of the billing period, but you can still pay a higher amount than the minimum requirement.
It makes sense to pay more than the minimum amount due because you’ll pay less interest rate. Also, your credit utilization ratio will remain lower which helps your credit score.
Pay the full balance
The last option is to pay not only the monthly statement but your remaining credit card balances.
Obviously, this has many benefits such as:
- Carrying fewer balances on your credit cards helps your credit score.
- You will decrease your credit utilization ratio. It’s an important credit scoring factor.
The best strategies to pay off your credit card debt
The most successful ways that consumers use to pay off their credit cards debt are:
- Credit card for balance transfer
- The “Avalanche” method
- The “Snowball” strategy
- A personal loan
Credit card for balance transfer
The point here is to find a credit card offer for transferring your current credit card debt into a new card.
Some cards like “Citi® Double Cash Card” or “Citi Rewards+℠ Card” offer 0% APR for 18 and 15 months respectively. Then, the APR is variable 14%-24% depending on your credit score.
Note that these offers often charge transfer fees (about 3%). This fee will probably be added to your total balance. However, the fee is worth it if you manage to pay off your credit card debt during the 0% APR months.
Many credit card issuers promote offers like these. You can check about your credit cards online or by calling your card’s customer support.
The “Avalanche” method
This strategy focuses on paying the credit cards with the highest interest rate first. You should pay the minimum due to all your credit cards. Then, try to pay as much as you can monthly on the card with the highest interest rate.
Start by making a list. Place the card with the higher interest rate at the bottom and move your way up.
After you pay off the first card’s debt, continue with the card with the second-highest interest rate.
By following the “Avalanche” strategy, you’ll pay less on interest rates on your journey to pay off your credit card debt.
The “Snowball” strategy
Instead, this method focuses on paying the cards with smaller balances first.
Similar to the above-mentioned method you should keep paying the minimum amount due to all your credit cards. Then, the rest of your money will go for paying the card with the smallest balance.
Repeat the process until you pay off your debt.
Start your list by placing at the bottom the card with the smallest balance. Once you successfully pay this balance, erase this card and move your way up.
The “Snowball “ method has two main benefits:
- The more credit cards with unpaid balances you have on your credit report the worse it is for your credit score. By reducing the number of credit cards with unpaid balances you improve your credit score.
- Each time you erase a credit card from your list, you’ll get a psychological boost to keep going. This emotion is really helpful to keep you motivated on working towards your goals instead of giving up.
A personal loan
Another option is to use a personal loan to pay off your credit card balances. In contrast with a credit card for balance transfer, it’s not possible to apply for a 0% APR personal loan. However, this method has its benefits:
- If you have a good credit score, you’ll probably secure a better interest rate than you currently pay for your credit cards
- A personal loan is installment credit and not revolving credit like credit cards. By transferring your debt into installment type of credit, your credit utilization ratio will decrease. This is because your utilization rate depends only on the revolving type of credit
- You believe that it will take longer than 15-18 months (that transfer credit cards offer 0% APR) to pay off your debt. In this situation, it may be better to use a personal loan to manage your credit card debt.
The best strategy to pay off your credit card debt
The best method to pay off your credit cards debt depends on your situation. Each strategy has its benefits and weaknesses:
- Credit card with a balance transfer. This is the best way if you’re confident you can pay off your credit card debt during the 0% APR period. If you fail to do so, you may end up paying higher interest rates.
- The “Avalanche” method. This strategy will help you pay less money on interest rates. On the other hand, it can be difficult, especially in the first months.
- The “Snowball” strategy. This method will help you stay motivated that you complete your goals. Also, it helps your credit score by having fewer cards with unpaid balances on your credit report. On the other hand, you’ll pay more money on interest rates than the “Avalanche” method.
- A personal loan. This way is better than a credit card for balance transfer if you think it will take you longer than 15-18 months to pay off your credit card debt. Otherwise, a credit card for a balance transfer is a better choice. If you have a good credit score, you’ll probably get a better interest rate than your credit cards as well.
Does it matter if I pay my credit card balances with cash, check, online, or using a debit card?
No, the way you choose to pay your credit card balances doesn’t affect your credit score. The only thing you should pay attention to is the possible fees that come with each way.
The common ways of paying credit card balances include:
- Online Payment
- ACH transfer
- Money transfer
According to the Consumer Financial Protection Bureau, if you sent the payment before 5 pm it should be credited the same day.
Is it better fo rmy credit score if I carry a balance on my credit card?
No, this is just a myth. To improve yoru credit score you need to make full on-time payments instead.
If you don’t use your credit card at all, your credit score won’t improve as well. Instead, you can use your card to make small purchases that you’re sure you can pay back on time before the end of the billing period.
How to pay your credit card bills while increasing your credit score
Making full on-time payments is the best way to increase your credit score. If you can’t afford to do it, try to pay at least the minimum amount due on all your credit cards. Paying a custom amount is still better than paying only the minimum required amount.
If you have many credit cards with unpaid balances you have several options to choose from. You can use a credit card for a balance transfer or a personal loan. Otherwise, the “Avalanche” and the “Snowball” strategies are the best approaches to your problem.
The important thing is to take action as soon as possible.
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