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Paying your credit card bill when the monthly statement comes is a pillar of responsible credit card use. But you're not limited to a single monthly payment. Making smaller payments more often has benefits you may not realize. And all major credit card issuers allow you to make mid-cycle payments.
Below are several reasons to consider making smaller, more-frequent credit card bill payments before the due date — and one reason not to bother.
» MORE: What happens if you make only the minimum payment on your credit card?
Should you pay your credit card more than once a month?
You might benefit from making multiple credit card payments each month if ... |
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Don't worry about making multiple credit card payments each month if ... |
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» RELATED: When is the best time to pay your credit card bill?
Reducing the interest you pay
If you typically carry a balance on your credit card from one month to the next, then making multiple payments during each billing cycle can reduce your interest charges overall. That’s because interest accrues based on your average daily balance during the billing period. The lower you can keep the balance day by day, the less interest you pay.
That’s true even if you pay the same dollar amount over the month. So paying $200 three times during the month results in less interest charged than paying $600 once a month.
For a mathematical example of how this works, see 3 good reasons to pay your credit card bill early.
Interest is typically very expensive and can cancel out the value of credit card rewards such as cash back and travel miles.
» MORE: How is credit card interest calculated?
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Matching payments to paychecks
Paying in small chunks as money comes available might be a better fit for your household budget. A typical example would be making a credit card payment when you get paid from work, maybe weekly or biweekly.
That way, you get the money out of your possession so you’re not tempted to spend it elsewhere.
With many credit cards, you can also change your payment due date to one that lines up better with your household cash flow.
» MORE: Can you change the billing date on your credit card?
Relatedly, whenever you come into occasional money — like an income tax refund or gift cash — some of that windfall can go immediately to the credit card balance.
'Tricking' yourself into paying more
If you created a steady repayment plan for yourself, a quirk of the calendar means you’ll pay more overall if you pay more often. Say you’re paying $400 per month toward your credit card balance. Instead, try paying $100 per week.
Isn’t that the same thing? It would be if the year consisted of 12 months of four weeks each. But a year has 52 weeks. Paying $100 per week ($5,200 per year) instead of $400 per month ($4,800 per year) means you’ll pay an extra $400 annually toward debt.
Helping your credit scores
Chipping away at debt could help your credit.
How? Credit scoring models, such as broadly used FICO credit scores, like to see you using less of your available credit, called credit utilization.
When you make multiple payments in a month, you reduce the amount of credit you’re using compared with your credit limits — a favorable factor in scores.
Credit card information is usually reported to credit bureaus around your statement date. Paying before your statement is prepared can reduce the balance reported to the bureaus, which helps your utilization ratio in credit scoring.
That said, try not to overthink it. So-called hacks such as the "15/3" credit card trick vastly overstate what you can accomplish by manipulating the timing of your payments to land on specific days.
» MORE: Check your credit score for free at NerdWallet
Saving on late fees
If you pay at least the minimum payment amount early in the month, and pay extra later, you’ll never be charged late fees, which can be $40 per infraction. (As of 2022. Late fees are regulated by the U.S. Consumer Financial Protection Bureau.)
And when you never pay late, you reduce the risk of the card issuer reporting your tardiness to the credit bureaus. Paying late is one of the factors that can reduce your scores.
You might also find that making a mid-month minimum payment is a stress reliever. Whatever else comes up during the month, including forgetfulness, at least you won’t be late with your credit card payment. (Just be sure you don’t pay so early that the payment gets applied to the previous month's billing cycle.)
Clearing room to charge more
If you’re bumping up against your credit limit, making payments more than once a month will whittle down the balance, leaving headroom to charge more if you need it. Again, though, using a high percentage of your available credit hurts your credit rating.
Getting motivation
If you’re in debt, paying more frequently might give you a psychological boost as you see the balance dwindle more often. Repeatedly seeing that you're closer to becoming debt-free could provide additional motivation to continue.
When NOT to pay more frequently
If you always have the cash to pay off your credit card balance in full monthly and you have no plans to apply for credit soon, there’s little reason to make multiple payments in a month. That’s because issuers typically give paid-in-full accounts an interest-free grace period, which usually lasts until the next due date. So you’re not saving money on interest.
If this describes you, you’re a transactor who uses credit cards as a payment tool, not a debt tool. You’re taking all the good things a credit card provides — rewards, convenience and consumer protections — and avoiding the main downside, paying interest.
You can set your credit card bill to be paid automatically each month from a bank account and spend time on something more enjoyable than mid-month bill-paying.
» MORE: NerdWallet’s best credit cards
As an expert in personal finance and credit management, I've delved deep into the intricacies of credit card usage and the associated benefits and pitfalls. With a comprehensive understanding of financial mechanisms, I aim to shed light on the concepts discussed in the article you provided.
Making Smaller, More-Frequent Credit Card Payments: An Expert Analysis
Reducing Interest Charges: One of the key advantages of making smaller, more-frequent credit card payments is the potential to reduce overall interest charges. This is grounded in a fundamental principle of interest accrual—interest is calculated based on the average daily balance during the billing period. By making payments more often, even if the total monthly amount remains constant, the average daily balance decreases. This results in lower accrued interest. This strategy is particularly beneficial for individuals who consistently carry a balance on their credit cards.
Matching Payments to Paychecks: Aligning credit card payments with income receipts, such as weekly or biweekly paychecks, can be a savvy budgeting move. This approach ensures that the money designated for credit card payments is promptly utilized, minimizing the temptation to spend it elsewhere. Additionally, some credit card issuers allow users to customize their payment due dates to better align with their cash flow, providing added flexibility.
'Tricking' Yourself into Paying More: A unique psychological aspect comes into play when making more frequent, smaller payments. By adopting a weekly payment routine instead of a monthly one, individuals may end up paying more annually. This is due to the calendar structure—52 weeks versus 12 months. The cumulative effect is an extra payment, which can expedite debt repayment.
Helping Your Credit Scores: Credit scoring models, including widely used FICO scores, favor lower credit utilization ratios. Making multiple payments throughout the month reduces the reported balance, positively influencing credit utilization. However, it's crucial not to exaggerate the impact, as certain purported credit card payment timing hacks may overstate their effectiveness.
Savings on Late Fees: Consistently making at least the minimum payment early in the month can save individuals from late fees, which can be substantial. Timely payments also mitigate the risk of negative impacts on credit scores, as late payments are a contributing factor to score reduction.
Clearing Room to Charge More: For individuals nearing their credit limits, making payments more than once a month can create additional spending room. However, it's essential to balance this with the understanding that high credit utilization can adversely affect credit ratings.
Getting Motivation: Frequent payments can provide a psychological boost, especially for those working to reduce debt. Seeing the balance decrease more often can serve as motivation to persist in debt reduction efforts.
When NOT to Pay More Frequently: For individuals who consistently pay off their credit card balance in full each month and have no imminent plans to apply for credit, making multiple payments may offer minimal benefits. This group, known as transactors, enjoys an interest-free grace period and can automate payments for convenience.
In conclusion, the decision to make smaller, more-frequent credit card payments depends on individual financial habits, goals, and credit card usage patterns. It's essential to weigh the potential benefits against personal preferences and financial circ*mstances.
