When should you pay your credit card bill?

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Figuring out the best time to pay your credit card bill can seem tricky. With over 60% of Americans having credit card debt, and 23% watching their debt grow each month, it's clear there's a lot of mixed messages out there. But, there actually could be a straightforward way to tackle this.

We're here to help clear up the confusion. In this article, we'll break down the important pieces of your credit card statement and show you how paying at the right time can help improve your credit and possibly even save you money. Plus, you could learn how to help your credit card work for you, with easy steps to help you stay on top of bills and encourage strong money habits for the future.

The Best Time to Pay Your Credit Card Bill

In simple terms, it’s important to pay off the whole amount you owe on your credit card by the time it's due each month. Paying before the due date has its perks, but at minimum, the key is to make sure your balance is paid down during the grace period. This way, you can dodge those steep interest fees on the items you've bought.

If you don't pay off the full balance by the due date, you'll start racking up daily compound interest, and trust us— it adds up fast. Right now, the average interest rate for credit cards is about 21.47%, according to the Federal Reserve.

It’s also important to be aware that only paying nothing more than the minimum payment on your credit card each month could make it difficult to get out of debt sooner. A good trick is to treat your credit card more like a debit card. Spend only what you can fully pay off at the end of the month. This way, you’ll keep yourself out of trouble and in control of your finances.

Understanding Your Credit Card Billing Cycle

To get smart with your credit card payments, let's start with the basics of billing cycles. Here’s what you need to keep in mind:

• Billing cycle: Think of this as the time frame your credit card tracks what you spend. It often starts on the first day of the month and ends on the last, but these dates can vary so be aware of the billing cycle for your particular credit card statement.

• Statement balance: At the close of each billing cycle, your credit card company will tally up everything you’ve spent and send you a statement. This total is your statement balance— what you owe for that billing cycle.

• Due date: This is your deadline to make at least the minimum payment on what you owe for the cycle. It’s usually about 21-25 days after your billing cycle ends. Paying by the due date keeps your account in good standing.

• Grace period: This is the time from when your billing cycle ends to when your payment is due. If you pay off your entire statement balance in this timeframe, you can avoid interest charges on your purchases. It’s a bit like a financial breather.

Credit Card Billing Cycle Example

Imagine your billing cycle is from January 1st to January 31st, and you've spent $500 during that time (your statement balance). Your bill payment is then due on February 25th.

Your grace period for this credit card statement is from February 1st to February 25th. You can pay off that $500 any time within this window to steer clear of interest. But remember, you at least need to make the minimum payment by February 25th in order to avoid late fees and potentially lowered credit scores. When possible, it’s best to pay your balance down to zero (or as close to it as possible).

Why Paying Early Can Be Beneficial

The average household in the U.S. is managing about $6,088 in credit card debt, and as of 2024, our country is seeing one of the highest levels of household debt of all time. Avoiding compounding debt from late fees on your credit card can be a necessary step to keeping your finances in a healthy place.

While making sure you pay on time is key, there are also perks to paying your credit card bill a bit earlier. Here are some benefits of being ahead with your payments:

Lowering Your Credit Utilization Rate

One of the biggest players in your credit score is your credit utilization rate. This fancy term is simply the portion of your total credit limit that you’re actually using each month. Keeping this number low reflects positively on your credit scores. The sweet spot? The common recommendation is to stay under 30% credit utilization, but less than 10% usage is usually ideal.

Other things to note

• Credit card companies usually send your balance details to the credit bureaus on your statement closing date each month. 

• By paying some or all of your credit card balance before your statement closes, you can reduce the balance reported and lower your utilization.

• Let's say you have a $1,000 limit and you’ve used $800 during your billing cycle. This would set your utilization rate at 80%. However, paying this balance down to $200 before your grace period ends could reduce the reported utilization down to 20% when it gets reported to the credit bureaus.

• Like we mentioned above, keeping your credit utilization under 30% is a thumbs-up for your overall credit health, but if possible, it can be better to keep your utilization under 10%.

Reducing Interest Charges

Holding onto a balance on your credit card leads to compounding interest charges based on your average daily balance over the billing cycle. Paying off some of that balance sooner rather than later could help lower the interest on what you ultimately owe.

If you carry a balance on your credit card, you will be charged interest based on your average daily balance throughout the billing cycle. Paying early could help minimize these charges.

Other things to note

• Your average daily balance is calculated by adding up each day's balance and dividing it by the number of days in the billing cycle. 

• The higher your balance throughout the month, the more interest you'll accrue.

• By chipping away at your balance early in the cycle, you decrease your average daily balance and the interest that comes with it.

• For instance, if you have a $1,000 balance with a 20.00% Annual Percentage Rate (APR) and pay $500 on day 10 of a 30-day cycle, you could accrue less interest than you would if you waited till day 25 to pay down your balance.

While paying early can be a great move to save on interest and boost your credit health, it's not a necessity. One of the most important things is to consistently make on-time payments. Think of early payments as a nice-to-have when your budget is flexible enough to allow for it.

Strategies for Managing Credit Card Payments

Managing credit card bills requires some finesse, especially when credit spending can quietly pile up. However, you can employ several practical approaches to keep your spending under control and ensure statements don't catch you by surprise.

Always pay at least the minimum by the due date

One fundamental strategy is to ensure you always make at least the minimum payment by the due date. It is recommended to set up automatic payments through your credit card issuer or bank, which could help eliminate concerns about missing due dates. For those who have a hard time keeping due dates in mind, it may help to align your credit card payments (or other recurring bills that you’re used to paying) with your payday.

Make multiple payments during your billing cycle

Another effective method to manage your credit is by making multiple payments throughout the billing cycle. This not only makes the payments more manageable, but could also help reduce your average daily balance (if you're carrying one), which can lead to lower interest charges. Consider dividing your total budgeted payment for the month by the number of weeks in that month and paying that portion weekly.

Aim to pay your full statement balance within the grace period

Striving to pay off the entire statement balance within the grace period can avoid interest charges altogether. Adopting a mindset where you treat your credit card like a debit card—only spending what you can afford to pay off by the end of the month—could maintain your financial health and help prevent debt accumulation.

Track your spending and stick to a budget

Monitoring your spending closely and sticking to a budget can be critical components of managing your credit effectively. You could even utilize tools such as your card issuer's app or website to keep an eye on your purchases in real-time. Where available, implementing spending alerts can assist in managing your budget by notifying you when you're nearing your spending limit. It's also essential to diligently review your statements every month to promptly identify any discrepancies or unauthorized charges.

Special Circumstances and Considerations

• In situations where you’re unable to pay your full balance, prioritize paying as much beyond the minimum payment as your budget allows. Even small additional payments can make a significant impact by decreasing your average daily balance and, subsequently, the interest that goes along with it.

• For sizable expenses, you may want to strategize a repayment plan to clear debt before the closing of your next billing cycle. An effective method is to split the total amount owed by the number of weeks leading up to the payment deadline, making consistent weekly payments towards that amount.

• Be selective with the cash advances and balance transfers that you take advantage of. These transactions may start accumulating interest immediately without the benefit of a grace period. Additionally, the interest rates for these kinds of transactions may be higher compared to standard purchases. Do your research.

• Contact your card issuer if you're facing financial hardship and struggling to make payments. Many issuers offer assistance programs for such instances, including temporary pauses on payments or adjusted interest rates to relieve some of the burdens.

Consistency is the Foundation of Good Credit Health

Remember, building a healthy credit profile is more about endurance than speed. The accumulation of small, consistent efforts over time is what builds a robust and lasting credit history.

By adhering to a few key practices—paying your credit card dues on time and in full, keeping your credit utilization rate low, and opting for early or frequent payments—you can significantly reduce interest expenses and enhance your credit standing. Effective credit management can shift your credit card's role from a burden to an asset, presenting better financial opportunities going forward.

Keep these strategies in mind:

• Monitor your credit utilization and keep it as low as possible. Aim to use no more than 30% of your credit limit at any given time, but paying your balance down below 10% is ideal.

• Set up alerts with your card provider to notify you of upcoming due dates, suspicious transactions, or when you're approaching your credit limit.

• If you consistently carry a balance or struggle to control spending, consider transitioning to using a debit card or cash until you can pay off your debt.

At Varo, we're committed to supporting you every step of the way. Our accessible, transparent banking solutions and educational resources are designed to help you thrive financially, no matter your background or circumstances. 

Varo’s Believe Credit-Builder Card¹ is a secured credit card that keeps these goals in mind, helping you to build credit consistently without falling behind.

Get started today or click to learn more about the Varo Believe Credit-Builder Card!

^{1 Varo Believe is a secured credit card designed to help you build credit; however, a variety of factors impact your credit and not all factors are equally weighted. Building credit may take time and Varo Believe may be able to help when you consistently make on-time payments.}