March 6, 2020

3 Ways to Save Money With Your Credit Card Payments

If you want to get out of debt with your credit card and save money at the same time, begin by understanding how they really work, how they affect your credit score over time, and how you can use credit cards to your advantage.

An unplanned medical bill or unexpected expense such as a car or home repair could easily bury you in credit card debt.  And whether you owe a couple of hundred or thousands of dollars, you may be thinking about what options you have to get out of debt.

Here are a few ways to help you pay off your credit card debt smarter.

3 Ways To Pay Your Credit Card Off To Your Advantage

1. Go Above and Beyond Minimum Payments

Credit card companies want to charge you interest. It is their bread and butter and how they make the most money. They will suggest that you pay the minimum payment, which is the smallest amount possible for you to pay.

But, making minimum payments is not the best option for you. The more you owe and the longer you are in debt, the more interest creditors make off of you.

Where do you find more information on the minimum payment? In your credit card statement, which you should know how to read, and is just as important as your credit report. For the most part, your credit card statement is a straightforward billing summary. It tells you the statement balance, payment minimum, and due date. It also includes a list of charges and credits plus the average daily balance after each.

When reading your credit card statement, it will tell you how long it will take to pay off your balance by only making minimum payments and how much it will cost you in total, Credit.org explains. Credit card statements put interest into perspective:

For example, if your balance is $1,500 and the total amount that you will pay by only making minimum payments is $2,000, then you will pay an additional $500 in interest alone. To save money in this scenario, simply pay more than the minimum payment, as counterintuitive as it sounds.

A practical way to do so is to plan or budget to send at least two minimum payments in one month’s time.  Therefore you are paying 2x the amount required, helping you avoid unnecessary costs in interest, also getting out of debt sooner.

Other ways to save money with payments are:

  • Find credit cards with low interest rates, which could depend on your credit history.
  • When you begin to make purchases with your credit card, aim to keep the overall balance less than 30% of your credit limit.
  • Monitor your credit score and credit history, and keep an eye out for cards that will allow you to transfer the balance from a high-interest account to one that offers a lower rate. Some will even offer zero interest for an extended time.

2. Make the Most of Your Billing Cycle

Credit card companies calculate their interest based on the average daily balance, according to NerdWallet. If your balance at the beginning of the month is $5,000 and you make a payment of $300, your average daily balance drops for the 30 days in that billing cycle. If on the 15th of the month you pay another $500, for 15 days, the average daily balance drops again, so you pay less interest.

To make that work, you must know the exact billing cycle for your credit card, The Balance says. Please do not assume that it is from the 1st to the 30th. Check your last statement to see when the billing cycle starts and budget your payments as close to the beginning as possible to save on interest. If you are making two payments a month, make the largest one at the beginning of the cycle and the second one as early as possible.

Other ways to save money with the billing cycle are:

  • Know your payment due dates. Do not schedule your first payment after the due date or the credit card company will charge you a fee.
  • If you have multiple credit cards, make a chart of the due dates, to keep track and manage your credit limits on your cards. If you go over, they will charge you a fee.  Preemptive measures like making charts or spreadsheets to monitor balances, and dues dates also help you build a sound payment history.
  • Stop using the cards if they have balances. If you keep charging, you nullify your payment, and the average daily balance does not drop and is likely to rise.

3. Use the Grace Period to Your Advantage

Figuring out how to manage installments and grace periods can help you save money on interest. What is a grace period? It is the period that falls between closing date and your next monthly payment due date of your credit card bill, according to Credit Karma.

So, if you pay off the balance of your account before the due date, the days to the end of that billing cycle are interest-free for any additional purchases you make. However, if you carry over a balance, even a tiny one, you will pay interest on any new purchases plus the carry-over balance.

Common Credit Card Mistakes to Avoid

There are some common mistakes you should try to avoid when using minimum payments, billing cycles, and grace periods:

  • Carrying a balance over from month to month.
  • Missing payments even one day past the due date.
  • Not reviewing your billing statement to make sure all the transactions are correct.
  • Not understanding potential fees like an annuity.
  • Making purchases above your debt repayment capacity.
  • Withdrawing cash before your billing cycle closing date.

All these mistakes will cost you money and, potentially, hurt your credit score.

Treat Your Credit Card as a Budgeting Tool

Credit cards are a useful financial tool to have, but only if you use them right; if incorrectly, they could lower your credit score significantly. Make sure to use it wisely in order to manage your cash flow.

What should you do with the money you will save on these payments? Put the money into financial products like savings accounts, certificates of deposit or money market accounts. You can also use this money for debt consolidation, settlements, or refinancing.

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