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It's best to pay off your credit card's entire balance every month to avoid paying interest charges and to prevent debt from building up. While it's perfectly fine to make that full payment once per month, it may be beneficial for your budget and credit score to make several small payments toward your balance instead, as long as they add up to your full balance owed.
Consumers made strides toward debt freedom in 2020: The average credit card balance dropped 14% from the previous year, the first annual decrease since 2011, according to Experian data. But consumers with credit card debt still owed $5,315 on average in Q3 2020.
Making weekly or monthly payments to eliminate your credit card balance is one of the most powerful ways to take control of your credit and to limit the impact of debt on your life. Here's how to decide which approach to take.
How Often Should You Pay Off Your Credit Card?
Credit cards are useful tools for building credit, since keeping your credit utilization low and paying your bill on time will have a significantly positive impact on your credit score.
But to get the most benefit from your cards, commit to charging only an amount that you can afford to pay off by your due date each month. This will make it less likely that your balance will balloon to a point at which it's overwhelming, possibly keeping you in a cycle of making only the minimum payment and accruing interest. If making one larger payment each month doesn't work well with your budget, it may be wise to pay down your balance more often.
Making smaller weekly payments, or even two or three payments in a month, spreads out the impact on your checking account balance. You won't have to worry about a large withdrawal exiting your account once a month, potentially around the time when you also need to account for rent and other bills.
Plus, consistently reducing your credit card balance throughout the month means any interest that accrues will accrue on a smaller balance, limiting the overall interest you're charged. (If you pay off your full balance each month as planned, though, you'll avoid paying any interest at all.)
Finally, making multiple payments regularly lowers your credit utilization ratio, which measures the amount of available credit you're using at any particular time. Experts recommend keeping utilization below 30%, and the lower, the better. Making an extra payment before your statement closing date means the credit card issuer will report a lower balance to the credit bureaus, which could help your credit score.
Also, since credit card issuers report your balance data to the credit bureaus at different times throughout the month, your credit score could benefit from multiple small payments and a consistently low credit utilization ratio—more so than, for example, high credit utilization all month followed by a full payment after the statement closing date that brings it to 0%.
Making Multiple Payments Can Help You Avoid Late Payments
You're not required to wait for your monthly statement to make payments on your credit card; you can make a payment at any point in the month, either to cover your full balance or part of it.
The best reason to do so is to avoid late credit card payments. Since payment history is the most consequential factor in your credit score, a single late payment can lead to a drop in your score. Paying off your card early—by paying the minimum amount early in the month, for instance, and the rest of your balance later—means you won't pay a late fee.
To ensure you never miss a bill and make every effort to pay off the entire balance each month, consider setting up autopay with your credit card issuer. You'll choose a linked account, such as a checking account, and an amount to pay each month. One of the easiest options is to instruct the issuer to automatically transfer your full statement balance from checking to your card account. This way, your statement balance will always reset to zero for the following statement period. However, if there's a chance you won't have enough money in your account to cover the payment, this is not a good option. Instead, you could set up autopay for the minimum payment, then manually make extra payments throughout the month.
In either case, it's crucial to confirm that you have enough money in your linked account to avoid potential charges for overdrafts.
How Does Carrying a Balance on Your Credit Card Affect Your Score?
It's a common myth that carrying a balance and paying off your credit card debt over time will benefit your credit score. In fact, paying off your bill every month, on time, and keeping your balance low throughout the month is best for your score. Consumers with the highest scores are also generally those who limit their credit card balances to 10% or less of their credit limit.
Paying off your balance each month, either with one payment or multiple, shows that you exercise responsible payment behavior, and your credit score will reflect that. You'll also save money on interest charges and avoid the stress of a growing balance.
Choosing a Payment Schedule
The most important action to take is to pay off your full balance each month, no matter how many payments it takes to get there. Weekly payments could strengthen your credit, but consider that as an added bonus. If one full monthly payment seems more manageable, you'll still see a positive credit impact, and you'll keep debt under control—perhaps the best outcome of all.