Should I Pay My Credit Card Early? Yes, Here’s Why

Making monthly credit card payments can be a pain. You constantly make that minimum payment, but after the interest charges apply, you barely make a dent in the outstanding balance. This is why credit card debt can be dangerous to your personal finances.

Now, on to the subject of making early credit card payments. Is there a benefit to making early credit card payments? And if so, what are these benefits?

Below, we answer the question “Should I pay my credit card early?” We also look at how paying early can impact your interest charges and credit score.

Should I pay my credit card early?

Are you wondering, “should I pay my credit card early?” The answer is a resounding “yes.” You’ll enjoy plenty of benefits when you make your credit card payment early, ranging from avoiding late fees to limiting interest charges. Let’s review these benefits.

No late fees

It’s easy to get caught up in life and forget your credit card payment is due. If you usually wait until the due date and it slips your mind, you have no breathing room to make the payment before the credit card issuer charges you a late fee. However, if you consistently make your payment early, you’ll have time to remember and make the payment before the due date passes, thus avoiding late fees.

When taking this approach, you’ll want to make sure you’re making the early payment within your payment grace period. This is the time after the billing cycle ends but before the payment due date. If you make a payment during the billing cycle, this will count as an extra payment, and you will still have to make at least the minimum payment on your next billing statement to avoid a late payment.

Reduced interest charges

While it’s not ideal to carry a credit card balance from month to month — since you’ll pay interest on those balances that roll into the next month — it sometimes happens. If you’re in this situation, you can mitigate the interest charges by making an early payment during the billing cycle, which is the 28- to 31-day cycle between monthly statements.

This payment will lower the balance that shows on your billing statement, reducing the interest charges you incur that month. By reducing these charges, you can ensure more of your monthly payment goes toward chipping away at your balance rather than paying interest charges.

Your results will vary using this method depending on the interest calculation method your credit card uses. Here’s how they can vary:

• Adjusted-balance method: This is when the credit card company calculates your interest charges based on your current balance when the billing cycle closes. By paying a large sum before that closing date, you eliminate the potential interest charges that sum would create.

• Daily balance method: If your credit card company uses this method, it tallies your average balance each day and divides that amount by the number of days in the billing cycle to get your average daily balance. Then, it applies the interest rate to the average daily balance. Because the balance is averaged throughout the month, paying your credit card bill early will not reduce your interest charges by much.

You can review your credit card’s terms and conditions or contact customer service to determine which interest calculation method your credit card uses.

Lower credit utilization ratio

Your credit utilization ratio — your total credit card balances on your credit report relative to your total card credit limits — is part of the amounts owed factor in the FICO scoring model, which accounts for 30% of your FICO credit score. The lower your credit utilization ratio, the more positively it impacts your credit score.

Your credit card issuer will report your balances to the three credit bureaus — Experian, Equifax and TransUnion — after completing the billing cycle and issuing your credit card statement. If you make a payment within your billing cycle, it reduces the balance the credit card issuer reports to the credit bureau, lowering your credit utilization rate and potentially increasing your credit score.

How much should I plan to pay early?

Now that we’ve addressed whether you should pay your credit card early, let’s cover how much to pay. The catchall answer to this question is as much as you can afford to pay, but it becomes more granular based on your goals.

If you’re looking to avoid interest altogether, you should wait for the credit card billing cycle to end and pay the statement balance in full by your due date. The period between the end of the billing cycle and the due date is a grace period, and if you pay this entire balance within that period, the credit card company won’t charge you interest on that amount.

And don’t worry about your cash back and rewards points. Even though you avoid interest charges by paying your statement balance after the statement closing date, you will retain these points.

However, if you will carry a balance to the next month and only want to limit your interest charges this billing cycle, simply pay as much as you can afford during the billing cycle. Then, once you receive the monthly statement, pay at least the minimum payment by the due date to avoid interest charges.

Is your early payment actually an extra payment?

Sometimes, paying your credit card bill early is actually making an extra credit card payment. This happens only when you pay during the billing cycle — before the credit card company issues the monthly statement. In this case, the credit card company will apply the payment to your balance as an extra payment, but you’ll still receive a bill after the billing cycle ends with a minimum payment.

If you don’t pay your minimum payment by the due date, the credit card company will charge you a late fee and penalty interest rate despite your extra payment earlier in the billing cycle. And if you allow that missed payment to linger for more than 30 days past the due date, you could get a late payment mark on your credit report. This can hurt your payment history, which can negatively impact your credit score.

One way to avoid forgetting to make your minimum payment on time is to set up an automatic payment to cover the minimum payment on or slightly before the due date.

Paying your credit card bill early can help in many ways

While your results will vary depending on your credit card’s terms, the answer to the question “should I pay my credit card early?” is yes. Whether you’re simply avoiding the late fee, mitigating interest charges, or trying to improve your credit score, paying your credit card bill early can help.

If monthly credit card payments are hurting you financially, the Tally†credit card debt repayment app can help. Our app helps you manage your credit card payments, and Tally offers a lower-interest personal line of credit, allowing you to efficiently pay off higher-interest credit cards. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.