Forget Those New Credit Cards Offers Unless They Help You Pay Off Debt More Efficiently
New credit cards offers seem to show up every day. Credit cards have many great things going for them, but some of these advantages work best when you pay your credit cards off, in full, each month. You can do it – do not carry a balance from month to month. Forget about that minimum payment and just pay the full outstanding balance off when the statement comes, before the due date.
In fact, there are three great reasons to keep your balances low and your cards totally paid off, month after month.
Reason #1: Paying Your Cards off Monthly Shows You are Reliable
When you pay your credit cards off each month you build good credit. How? Actually, three ways. First, paying your cards off entirely keeps your debt to income ratio down. Second, paying off your cards keeps your percentage of utilized credit down. And third, full payment each month demonstrates financial responsibility through on time payments. It’s a win, win, win situation. An increase in your credit score is like the gift that keeps on giving, as you reap many benefits, including lower interest rates on car and home loans. Of course, as your score improves you will find more credit cards offers coming your way.
Reason #2: Paying Your Cards off Monthly Keeps Your Credit Open
When you pay your credit cards off in full each month you ensure that the full available credit of that account is open for you to use. Let’s say that you have a credit card with a limit of $1500. One day, after leaving your pet alone at home too long, you realize that you need to buy a new couch – the couch costs $1450. If you have a balance of $100 on your credit card you will not be able to use it to buy the couch. Unless you want to choose a cheaper couch. Sure, you have credit cards offers you could use, but is this your best choice?
Not being able to complete the purchase with your credit card could mean missing out on rewards points or frequent flyer miles, losing the ability to buy the couch now even though you don’t get paid for a week, or even having to embarrass yourself by asking the clerk to put X amount of dollars on one card and X amount of dollars on another card. Furthermore, using your credit card to pay for the couch, in full, might give you a perk, like extending the warranty on the couch, depending upon your card. So keeping your card paid off, in full, ensures that it is open when you need it.
Reason #3: Forget Credit Cards Offers – Paying Your Cards off Monthly Means You Pay No Interest
Wonder how credit card repayments work?This varies a bit by company, but generally your money is applied to your interest first, then towards your oldest debt. This means that unless you pay your card off in full each month you will almost always pay some type of interest. But, if you pay off your card each month – no interest. This is perhaps the best reason to pay your credit cards off, in full, after the end of every billing cycle. You see, credit card companies give you a grace period. How credit card grace periods work? This is a time after your billing cycle closes during which you will pay no interest if you pay off your outstanding balance in full. So, instead of paying interest on a balance that you carry from month to month, use your credit cards for convenience (don’t you just love paying for gas at the pump!) but then pay it off in full when the bill comes.
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