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The Right Way to Pay Your Credit Card

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Credit card payments are unlike most monthly bills, which can be both refreshing and confusing. How you choose to pay your credit card bills will depend on your budget situation and financial goals, but before you can figure out the best way to make payments, you need to understand the options. These options vary by credit card issuer, but generally, you can make your payments in one of the following ways.

Making the Minimum Payment: What That Means

What it is: Your credit card issuer will set an amount you must pay by your bill’s due date in order to keep your account in good standing. If you fail to make at least the minimum payment by the due date, your issuer may charge you a late fee or report the delinquency to the credit bureaus, which can hurt your credit score. You can find your minimum payment on your account statement.

What you need to know: A minimum payment allows you to keep your account in good standing during times of financial difficulty. It gives you the option of budgeting flexibility.

Of course, if you get into financial trouble and use credit cards as a lifeline, your minimum payment could increase to a point that it’s not affordable. Beyond that, the option to pay a small portion of your credit card bill can also tempt you to procrastinate in paying off debt, allowing it to balloon and become a big problem you’ll eventually have to tackle. Making minimum payments can be a fast track to unaffordable credit card debt. (If you’re working on paying off your credit cards, you can calculate your credit card payoff timeline here.)

Paying the Statement Balance: What That Means

What it is: Your statement balance is the total amount of charges made during one billing cycle, plus any outstanding balance on the account. Paying the statement balance is often called “paying in full.” You can find the dates of the beginning and end of your billing cycle on your account statement.

What you need to know: By consistently paying your statement balance every month, you can take advantage of a grace period between the end of the billing cycle and your bill due date, during which purchases will not accrue interest. Paying your statement balance allows you to take advantage of perks and conveniences without going into credit card debt. Note that once you carry a balance from one statement to the next, you will lose that grace period. (Cash advances often don’t come with a grace period as well, check your credit card’s terms before making one.)

Regularly paying your statement balance requires smart budgeting, especially if you have your credit card payment preferences set to automatically pay the statement balance. You need to make sure you have enough money in your bank account to cover all your previous billing cycle’s charges. Otherwise, you could overdraft your bank account or end up accruing interest on credit card transactions you thought you could afford to pay.

Paying Your Current Balance: What That Means

What it is: Your current credit card balance is the total amount of charges that have cleared your account through today’s date. If you pay your credit card bill 10 days after the end of the last billing cycle, you can pay the current balance, which will include the previous billing cycle’s charges and the charges from the previous 10 days (plus any outstanding balance from earlier billing cycles).

What you need to know: If you use your credit card frequently, the current balance will differ from the statement balance. That doesn’t necessarily mean you’re in debt, though some people find the two figures confusing. If you’re trying to pay off credit card debt, paying the current balance could get you to that satisfying $0 balance, and potentially get your grace period back. (Ask your issuer about that.)

Like paying your statement balance, automatically paying your current balance requires attention to spending habits so you don’t drain or overdraft your bank account unexpectedly.

Paying a Custom Amount: What That Means

What it is: You can pay whatever dollar amount you want, whenever you want, provided your credit card issuer allows it.

What you need to know: Some people like to make credit card payments more often than they’re due as a budgeting strategy or to keep their credit card balances as low as possible (that’s good for your credit score). Generally, you can log into your online credit card account to make a payment and enter whatever dollar amount your issuer allows you to. Just make sure you don’t lose track of when your payment is actually due, so you don’t inadvertently pay late or accrue interest on charges you intended to pay off within one billing cycle.

However you choose to pay off your credit card bill depends on your personal budgeting preferences, debt-payoff strategy and credit score goals. Remember to regularly check your account to make sure your payments are going through as planned. You can see how your credit cards are impacting your credit scores for free on Credit.com.

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