Q&A: Should I Pay My Credit Card in Full Each Month?

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Q: I’ve amassed quite a balance on my credit card account and I’m wondering how to handle the monthly bill. Should I strive to pay my credit card bill in full each month?

A: One of the most important decisions a cardholder faces is whether to pay off their credit card balance in full or just make the minimum payment each month. Let’s take a closer look at credit card payments and how they work so you can make an informed decision about your monthly bill.

Minimum payments

The minimum payment on your credit card is the smallest amount you’re required to pay each month to keep your account in good standing. Typically, it’s a small percentage of your total balance, often around 1-3%, plus any interest and fees. Making this payment prevents you from incurring late fees, but it does little to reduce your overall debt.

Pros of paying the minimum payment each month:

Prevents late fees and penalties.
Enables you to maintain a positive credit history.
Offers flexibility during times of financial strain.

Cons of paying the minimum payment each month:

Accumulation of interest charges on the remaining balance. This means you’re ultimately paying much more than your original purchase cost.
Longer debt repayment period that can stretch on for years with potentially high interest rates.
Higher credit utilization ratio, thanks to an ongoing outstanding balance, which can hurt your credit score.

Paying the balance in full

If you can, it’s best to pay off your credit card balance in full each month. Doing so will help you reap a range of financial benefits that can help you build wealth, protect your credit score and more.

Pros of paying the balance in full each month:

No interest charges. Paying your balance in full means you don’t carry any debt over to the next billing cycle. As a result, you won’t pay interest on purchases, which can save you a substantial amount of money in the long run.
Improve credit utilization ratio. Paying in full keeps your outstanding balance low, which directly benefits your credit utilization ratio. Ideally, you should keep your credit utilization below 30% of your total credit limit, and paying in full can help you stay comfortably within this range.
Build positive credit habits. Paying off your balance each month encourages responsible financial habits and reduces the temptation to rely on credit for day-to-day expenses.

Cons of paying the balance in full each month:

Requires discipline and budgeting to ensure you’re not overspending on your card.
Limits cash flow in some situations, especially if you’re facing large, unexpected expenses. However, the long-term financial benefits of paying in full often outweigh this temporary cash flow constraint.

Does paying the minimum amount impact your credit score?

Paying only the minimum amount can indirectly affect your credit score, primarily through its impact on your credit utilization ratio. Here’s why.
1. Credit utilization ratio
A high credit utilization ratio (over 30%) is considered a risk factor by credit scoring models and can lower your score. When you only make minimum payments, your balance stays higher, which can increase your utilization ratio and hurt your score over time.
2. Long-term debt cycle
Relying on minimum payments means you’ll likely carry debt month-to-month, which can signal to lenders that you’re struggling with debt. This, combined with a high credit utilization ratio, can make it harder to qualify for new credit or receive favorable terms.
3. Impact on your payment history
As long as you pay the minimum on time, your payment history won’t be directly affected, so you won’t see an immediate drop in your score. However, the long-term cost of minimum payments could eventually make it harder to meet other financial obligations, indirectly impacting your credit.

It may be your least favorite piece of mail or reminder delivered to your phone, but your credit card bill can be the key to achieving and maintaining your financial health if managed correctly. Use our guide to help you make informed decisions about how to manage your credit card bill.