The other day I was perusing my usual personal finance threads and I came across a post from someone who wanted to pay her credit cards in full every month to avoid interest, but she didn’t know how or where to start.
While this might seem obvious to many people, it’s not surprising that people don’t know how considering it isn’t something we teach in school. On top of that, credit card companies make money from people who don’t pay their balance every month, so they don’t exactly make it easy to understand the process.
Asking questions like these can be embarrassing when you feel like this is something you should know but don’t. So just in case you’re embarrassed to ask, here is a guide for those of you who want to start paying your credit card off every month, but just aren’t sure how to get started.
Step 1:
Take a look at your credit card statement. You’re going to see a bunch of different numbers. If you want to pay in full and avoid accruing interest, there are only two numbers you need to pay attention to: the “new balance” and the “payment due date.” Sometimes the “new balance” is also known as the “statement balance.”
If you look at the above statement, the new balance is $123.62 and the payment due date is 10/28/2020.
Step 2
Pay the amount listed under new balance by the payment due date. It’s a good idea to pay it a few days in advance since payments sometimes take a couple of days to transfer.
So in this example, you would pay $123.62 by 10/28/2020.
That’s it!
It really is that simple, but credit card companies like to make things difficult. It’s no wonder people are confused about how to pay credit cards in full every month. If you look at your credit card summary when you log into your online account, the due date is only listed next to the minimum payment amount. This makes it seem like only the minimum payment amount is due, which is not true. Besides that, there are all sorts of numbers listed and it can be challenging to figure out what is what.
My advice: make it as easy as possible.
If you’ve ever forgotten to log in and make a payment (I’m totally guilty), you’ll benefit from setting up auto payment. You should be able to link your credit card to your checking account and select the option to pay the full amount due a few days before your due date.
This ensures that you’ll never forget and end up with late fees and interest charges. You do need to make sure to account for this payment in your budget, however. Keeping a healthy balance in your checking account will help make sure you don’t accidentally overdraw.
Credit cards can be a helpful tool for building credit, giving you additional financial security on your purchases, accruing cash or other rewards, and providing you with extra convenience. Although some financial gurus think that credit cards are evil, there’s really no reason not to have one if you can use it responsibly by paying it off in full every month.
Other Helpful Information
Does the balance have to be zero in order to avoid interest?
No, you do not need to have a zero balance. You can keep using the card as long as you're under the limit and pay the amount listed on your statement by the due date. Some people do prefer to pay the total outstanding balance, but that is up to you.
Can I pay half of the amount from my first paycheck of the month and half from my second paycheck?
Yes, you can make as many payments as you’d like throughout the month, but it might be more difficult for you to track. As long as the total balance listed on your statement is paid by the due date, when you pay and how many payments you make is up to you.
What are all those other numbers?
Minimum Payment: the amount you have to pay if you want to avoid late fees and other penalties. You will be charged interest if you only make the minimum payment.
Total Credit Limit: the maximum amount you can charge on your card at any one time. The outstanding balance can never exceed this amount.
Outstanding/Current Balance: total amount due at the present moment. It includes the previous statement balance plus any charges made since the statement date minus any payments you’ve made. This is the amount you pay if you want to have a zero balance (but again, that is not necessary).
Available Credit: the amount you can spend before you hit your limit. It is calculated by taking the total credit limit and subtracting the outstanding balance.
