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Should I pay off my credit card all at once?
Using a credit card responsibly means you can spread the cost of your purchases over a number of months. But, it’s important to remember to clear your balance as soon as you can afford to. Whether you choose to do this all at once or over a period of time is down to your personal circumstances, so below we’ll explore whether paying off your credit card balance all at once is a good idea.
Clearing a hefty credit card balance
If you’re looking to clear a large balance on your credit card – perhaps from a bigger purchase like a washing machine – you might be wondering whether paying it off all at once makes a difference to paying it off over a longer length of time.
Although it’s always a good idea to clear your outstanding balance on a credit card as fast as you can, we understand that paying it off instantly isn’t always possible. If you can afford to repay your entire balance – and it won’t put you in a stretched financial situation if you do so – then it’s a good idea to clear your balance as soon as possible. This is because, unless you clear your balance at the end of the first month (i.e. when it first appears on your statement) then you will usually be charged interest on your outstanding balance every month. The exception to this, of course, is if you have a credit card that offers a 0% promotional period on purchases.
On the other hand, if you think pushing yourself to clear your entire balance now might stretch your finances a little too far, it might be best to pay in more manageable instalments instead. Remember, you should always aim to have a small amount of savings set aside in case you have to cover any unexpected bills.
If you’ve received a lump sum of cash, for example, then it can make sense to put this towards clearing your credit card balance. This is because you’re pretty much certain to save more in interest payments by doing this than you would earn in even the most competitive of savings accounts.
Clearing your balance every month
If you can afford to do so, it is a good idea to pay off your credit card balance in each month full as doing so means you won’t have to pay interest.
One thing you might want to consider is to set up a Direct Debit to cover at least the minimum repayment each month. This way, even if you do want to clear your balance in full, you won’t have to worry about missing a payment entirely. Missed payments can be costly (most providers will charge you £12 for a missed payment) and will have a negative impact on your credit history, which could make it harder and / or most costly to get credit in future.
Remember, using credit responsibly means never spending more than you can comfortably afford to repay.
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Does repaying it faster affect my credit history?
Generally, your credit history won’t be affected positively or negatively by how fast you repay a credit card balance. So long as you meet at least the monthly minimum repayment and don’t go over your credit limit, your credit history will show that you’ve kept to your credit agreement.
But that’s not to say you should take longer to repay what you owe, as it will usually cost you much more if you do. Generally, when spending on a credit card, the faster you repay what you’ve borrowed, the less you have to pay in interest.
On the other hand, lenders may look at your future credit applications unfavourably if you have a number of credit cards each with an outstanding balance on them. So, in these circumstances, repaying your credit cards quickly may work in your favour.