If you are new to using a credit card, it may take a while to understand how it works and get used to the monthly cycles. A lot of times, you could be mistaken that only making the payment towards the minimum due amount on time is fine. However, this can result in a debt trap before you even realise.
Making timely bill payments and in full will help in saving a lot of money which would otherwise go towards interest. It can also help in boosting your credit score. It makes sense to make timely bill payments instead of late payments on any credit card. However, is it equally sensible to make bill payments before the due date? Let’s understand more about this.
Inculcate the Habit of using Credit Cards Sensibly
Credit cards can be a boon depending on how they are used and how the monthly bills are handled. If you have newly acquired a credit card, make sure to read up more on the various terms and conditions before making decisions on its usage and bill payments. Before you realise, all your actions about your credit card will start impacting your credit score and thereby, your ability to borrow credit in the future.
Why Pay Before the Due Date?
Paying your credit card bills before the due date can have its advantages. Here, we have listed down some of them:
- Improved credit score
If you pay your credit card bill early, it will be reflected on your financial status as a positive sign. It indicates that you can handle your debt and financial matters very well. Credit card bill payments that are made in advance or on the due date have a good impact on your credit score as they help in building a positive repayment history.
- Positive impact on debt-to-income ratio
Credit card debt that is paid in advance will minimise your debt-to-income ratio. The debt-to-income ratio is an indicator of the amount of debt being carried as compared to the income earned. For instance, if your earning is Rs. 50,000 and you have an outstanding credit card bill of Rs. 10,000, then the debt-to-income ratio will be 20%. An ideal approach is to never carry more than 30% to 40% debt vis-a-vis your income.
- No interest charges
If you have the availability of funds for clearing your credit card dues, it makes sense to do so at the earliest. This ensures that no payments are missed beyond the due date. Thus, you will be able to avoid unwanted charges in interest or late payment fees. In case you miss the due date or can pay only the minimum due amount, the balance due will start accumulating interest.
- Extended credit limit
If you make your bill payments in advance, you can extend your credit limit and easily make more purchases than you would be able to otherwise. This can help especially if you plan to make any big-ticket purchases with your credit card.
- Easy budgeting
With credit card dues made in advance, you will have a better track of your expenses and know the amount of money left in hand for additional spending needs. This will make your budgeting easier and ensure that you do are never short of funds for clearing any other dues.
- Avoid fees and fines
The interest fees and any late charges can start accumulating if you miss your credit card payment. When you make your credit card bill payment early on or by the due date, you can save on the additional interest expenses. Most credit card issuers don’t charge any interest as long as the bill payment is made within the due date. This is considered as an interest-free period by issuers and banks. In case you only pay the minimum amount, the balance amount will be levied with interest.
- Avoid the risk of delayed payment
If you wait till the end for making your bill payment, there are chances of missing out on the cut off date. In some cases, the due date may come along with a specific cut off time. If you miss this cut off time, you could face late payment charges. An advance payment will mean that you don’t have to worry about remembering it till the last minute and avoid any associated charges.
- Peace of Mind
With an advance bill settlement on your credit card, you don’t have to worry about a delayed bill payment or remain anxious about missing out on the due date. You can avoid last-minute panic by settling your bills in advance and enjoy a stress-free usage of your card.
Which is the best time to make credit card bill payments?
The only bad choice as far as your credit card bill payment date is concerned, is anything beyond the due date. This can end up as a costly mistake which could have repercussions on your credit score. Paying your credit card bill in full and before the due date or even making an extra payment can help you fetch a higher credit score.
It will help if you adopt such habits around bill payments and organise your finances to have a healthier approach towards payments. A good credit score will come in handy while fetching fresh credit in the future and these are small steps towards getting a healthy credit score.
A credit card can be a boon or curse depending on the way you use it. There are probably no other financial tools which are as fast as a credit card during any kind of financial emergency. Hence, to make the most of it, have a certain discipline while making monthly bill payments. If you don’t want your credit card to become a debt trap, make sure to pay off credit card bills well before the due date to continue enjoying the benefits it has to offer.
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