Is Paying Off Your Credit Card Debt Every Month Pointless?

Is Paying Off Your Credit Card Debt Every Month Pointless? Featured Image
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Some people might look at the title of this article and say, “No, of course not. Paying off your credit card balance each month is important, otherwise you’re paying so much extra in interest.”

And others might say, “Well, duh. Carrying a balance from month to month will help you improve your credit score.”

Care to guess which one is correct?

If you thought the second person makes a valid point, it’s time to burst that particular bubble. In fact, there’s nothing pointless at all about paying off your credit card debt each month. It’s incredibly beneficial to your credit score, your payment history, and your finances in general to pay off your credit card each month. And we’re going to prove it.

1. Paying off your balance each month will improve your credit score.

It’s a pretty popular myth that carrying a balance can benefit your credit score, but the opposite is true. By not carrying a balance each month, and paying off your credit cards on time, you’re showing that you are responsible with the credit you have been given.

2. If you can’t afford to pay off the full balance each month, keeping the balance low will also help your score.

The credit reporting companies look favorably on those whose credit utilization—the ratio of your credit card balance to your credit card limit—is 30% or less. So if you can’t pay off your full balance, paying off enough to keep your credit utilization ratio to under 30%, your credit score will benefit from it. And a good credit rating can make all the difference. 

3. Paying your balance on time will also benefit your credit score.

Another big part of how your credit score is determined is by how timely you submit your payments. If you pay on or before your credit card statement due date every month, that’s good👍. And if you miss payments or submit your payments late, that’s bad👎.

4. You’ll save money if you do.

The average credit card interest rate is almost 20%, and that interest can really add up if you carry a balance over time. Let’s say you have $2,000 on your credit card right now, and your credit card interest rate is 20% (not great, but we’ve seen worse). If you only pay the minimum balance each month, it’s going to take you 186 months to get rid of your debt, and you’ll end up paying $2,723.45 in interest alone. So you’d really be paying more than double what your put on your card to begin with. Now does that make any sense (or cents)?

5. You’ll have access to more credit faster if you pay it off.

Car accidents and home repairs rarely ever come with a warning and time to plan. You might need your credit card’s full balance in the near future for something you can’t even imagine yet. So wouldn’t it be easier if you paid off your balance each month and had the full credit limit available to help you should an emergency pop up? Of course it would. 

Paying off your credit card debt each month might seem pointless at times, but in the end it can really improve your finances and your life. It takes effort and practice to get into that kind of habit, but with automatic payments and help from the experts at Dime, you can become a financial rock-star in no time.

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