Savvy Credit Card Use: Pay Off Your Balance Each Month

There’s a reason that plastic is becoming the most popular method of paying for things.

Credit cards are convenient to carry, and they provide a way for you to make large purchases quickly and easily.  Additionally, credit cards can help you establish a financial reputation.

However, it’s important to understand that credit cards also have a dark side.

If you aren’t careful, you could end up in debt.  And one of the ways that it’s easy to slip into debt is by failing to pay off your balance each month.

Avoid Credit Card Debt

Credit cards are extremely easy to use.

Simply swipe, and you’ve made a purchase.  Additionally, it’s possible to delay paying for that purchase if you carry a balance.

Worried about paying for the item?  Just put it on your credit card and pay only the minimum payment.  You don’t actually have to pay off the whole purchase at once.

And that’s where you begin to run into trouble.

Carrying a balance eventually leads to the build up of debt, since you aren’t paying off your purchases.  You continue to owe money, and you can keep adding new purchases — up to your credit limit.

If you don’t want to be buried in debt, it’s vital that you pay off your balance each month.  Otherwise, your credit card use adds up to the point that you begin to feel trapped.

Don’t Pay Interest

credit card minimum trap

Pay off your balance every month and keep yourself out of credit card debt.

Another issue with carrying a balance is that you end up paying interest.

Interest is the price you pay for borrowing money.  The savvy credit card use pays off the balance each month and avoids paying interest.

This is a smart move.

That way, you enjoy the convenience of the credit card (and the perks of the rewards program) without paying a fee straight into someone else’s pocket.

If you pay interest, though, the story is different.

A credit card with 15.99% annual interest — or 20.99% interest — begins to add up quick.  Especially if you keep making purchases.  When you pay only the minimum, rather than paying off your balance, most of your payment goes to interest, rather than to principal reduction.  You end up with more and more debt, and you pay it off with increasing slowness as you continue to add purchases to your card.

Before you know it you are neck deep in credit card debt.

Pay off your balance each month, and you won’t pay interest.

Keep Your Good Credit

Part of your credit score is your debt utilization.

If you don’t pay off your balance each month, but instead let your balance grow, eventually it will count against you in your credit report.  The amount of debt you use, as a part of the whole, matters.  The closer you are to your limit, the lower your credit score.

Pay off your balance each month, and your debt utilization will be lower — and appear more favorable.

Bottom Line

Credit cards can provide plenty of convenience and rewards.

However, you have to use them as part of a smart spending plan.

Make sure you only spend the money you have, and don’t charge more than you can pay off in a month.  Pay off your balance, and you can reap the rewards of credit cards without paying the interest costs or racking up the debt.



Published or updated August 1, 2012.

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