The tricky thing about credit card debt is that it can quickly get out of hand. In fact, TransUnion reports that as of the first quarter of the year, U.S. credit card balances totaled $917 billion. That's a 19.2% increase from a year prior.
Now a big reason why credit card debt tends to spiral is that some people only make their minimum monthly credit card payments each month, thereby allowing interest to accrue against them and causing their total balances to grow. But I make a point to pay my entire statement balance each month to avoid having to pay interest on my credit cards. That way, I get all of the benefits of using credit cards, like reward points and cash back, without losing money along the way,
But sometimes, I'll go beyond paying my statement balance and send my credit card company extra money. Here's why.
When I want to ease the financial pressure for the following month
If you use credit cards regularly, you may notice that sometimes, your statement balance is not the same number as your current balance. You may, for example, have a statement balance of $2,400 and a current balance of $2,700. The statement balance is what you owe that month, whereas the current balance represents the total amount you owe (your statement balance plus any charges you have made since the statement period ended).
In that situation, if you only pay $2,400, you won't accrue interest on the remaining $300. That's because that $300 won't be due until the following month. But sometimes, I'll pay my current balance rather than just pay my statement balance so that I can chip away at part of the next month's balance ahead of schedule.
Why do I do this? It might seem like I'm just giving extra money to my credit card company before I need to. And to be fair, that is what I'm doing. But, I'm doing it for my benefit — to have a smaller balance the following month.
This isn't a strategy I use all the time. But I'll sometimes use it if I anticipate a lot of spending in the coming month and don't want a massive bill to deal with at once.
For example, let's say I have a statement balance of $2,000 and a current balance of $2,500, but I know that I'm planning travel for the following month that's apt to result in a higher bill than usual. I might try to knock out that extra $500 ahead of time so I'm dealing with a more manageable bill four weeks later.
A move I find helpful
Given that some people struggle to make their minimum credit card payments each month, paying extra may not be an option for everyone. And it may not even make sense for your financial situation.
But for my mental well-being, it sometimes works to my benefit to pay more than my credit card statement balance. So while I don't do it every month, I do it when I feel it will work in my favor.
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