What is the best strategy to pay off credit cards?

It’s better to pay off your credit card than to keep a balance because paying the card off will save you money on interest. Credit card companies charge interest when you don’t pay your bill in full every month, but you’ll enjoy a grace period with no interest if you always pay your full statement balance by the due date.... read full answer

Some people think you need to carry a balance in order to see positive information on your credit report, but that’s simply not true. You don’t even need to use your credit card to build credit. Simply keeping an account open and in good standing is enough to help your credit.

Here’s why it’s better to pay off your card than to carry a balance:

• If you pay your bill in full each month, you won’t be charged any interest on most credit cards, thanks to a grace period. But you’ll lose the grace period if you don’t pay in full one month, and you’ll have to pay your entire balance for two consecutive billing cycles to get it back.
• You don’t need to carry a balance for a credit card to help your credit score. What matters most for credit building is meeting due dates and keeping credit utilization low.
• Paying your bills on time doesn’t require you to pay your balance in full each month. You just have to make the minimum payment listed on your statement. But if you take on too much debt, you may find it hard to make your monthly payments.
• Carrying a balance makes it harder to keep your credit utilization low, since your everyday spending will be added on top of the amount you’re carrying from month to month. It’s best to use less than 30% of the credit made available to you.

So, to recap, it’s better to pay off your credit card than to carry a balance because it builds your credit history just as well without subjecting you to interest charges. Just remember, not carrying a balance does not mean you have to stop using your credit card. There is a middle ground. A balance will be listed on your credit card statement whenever you make purchases, but if you pay that amount by the due date, you won’t really be carrying a balance.

Using your card regularly actually helps because having a credit utilization ratio between 1% and 10% is slightly better for your credit score than 0%. But credit utilization is based on your statement balance, and your monthly statement comes before the due date. So you can still pay your bill in full every month while doing right by your credit score.

Why 0% APR credit cards are an exception

During the 0% APR introductory period, your balance – whether from a purchase or balance transfer – won’t accrue interest as long as you pay the minimum amount required by the due date each month. So, keeping a balance is expected, but you do have to make monthly payments along the way. And if you don’t pay in full by the end of the 0% period, interest will come into play.

That said, if you’ve got some credit card debt you’d like to get rid of, a 0% balance transfer credit card could help you save a lot of time and money. And if you’re trying to improve your credit, WalletHub’s free daily credit scores and credit analysis can get you on track.

You should pay off your credit card every week if your statement balance at the end of the month would otherwise be close to your spending limit. Ideally, your balance at the end of a billing period should be less than 30 percent of your credit limit. Anything above that is bad for your credit score. So, paying off your credit card every week could prevent credit score damage. Weekly credit card payments are also a good way to keep your spending in check. You’ll be less likely to wind up with a big credit card bill that you can’t afford if you pay weekly.... read full answer

Plus, paying off your credit card every week ensures that you’re making your payments on time. If you pay in full by the due date, you won’t be charged interest on purchases either. And you’ll have more credit available for emergency spending.

The average American credit card debt is $8,701 per household, according to WalletHub’s 2019 Credit Card Debt Study. Americans started 2019 with over $1 trillion in credit card debt. And though we repaid $38.2 billion of that amount by the end of Q1, we added $35.5 billion in new debt by the end of Q2. That’s the largest Q2 buildup, ever, and we continued adding to our tab throughout the rest of the year. In other words, there is reason to be concerned about the average American’s credit card debt.... read full answer

The $8,701 that the average household owes is $498 higher than what WalletHub considers sustainable. That means minimum payments will eventually become too expensive for people with so much credit card debt. That will lead to missed payments and cause charge-off rates to rise. And that in turn will hurt consumers’ credit scores, lenders’ bottom lines and even the economy as a whole.

Average American Credit Card in 2020:

• Average household debt: The average American household owes $8,701 in credit card debt, according to WalletHub.
• Average debt over time: The average American household’s credit card balance has increased by more than 80% since 1990, after adjusting for inflation.
• City with the least sustainable credit card debt: It will take people in Jacksonville, North Carolina roughly 138 months to pay off their median debt of $3,435, and it will cost $4,048 to pay off.
• City with the most sustainable credit card debt: It will take residents of Cupertino, California roughly 12 months to pay off the city’s median credit card debt of $2,408. They will pay an estimated $215 in finance charges in doing so.

You may owe more or less credit card debt than the average American. But it’s important to remember that carrying any credit card balance from month to month will be very expensive, unless you have a 0% introductory APR. The average credit card offer has a 18.61% APR.

Plus, when you carry a credit card balance, it’s hard to determine whether you’re regularly overspending on new purchases. That can easily lead to more debt than you can afford and then missed payments. Both of those bring about credit score damage.

If you’re currently dealing with credit card debt, you’ll want to make sure you pay it off efficiently. That means cutting back on extraneous spending and attacking the balances with the highest interest rates first. You may also want to look into balance transfer credit cards or debt management plans.