Paying your credit card bill when the monthly statement comes is not the only opportunity to reduce the account balance. Making smaller payments more often has benefits you may not realize. And all major credit card issuers allow you to make mid-cycle payments.
Here are several reasons to make smaller, more-frequent credit card bill payments before the due date — and one reason not to bother.
Reduce the interest you pay
If you carry a credit card account balance month to month, making multiple small, frequent payments 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 than paying $600 at the end of the month.
Interest is typically very expensive and can cancel out the value of credit card rewards such as cash back and travel miles.
Match 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 bi-weekly.
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.
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.
Trick 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.
Help 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.
Save 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 2020. 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.)
Clear 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.
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.