The right way to pay your credit card bills

May 10, 2020

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Editor’s note: This post has been completely updated with current information.

Credit card bills can be confusing to decipher for some cardholders — and a source of concern and anxiety if you owe a large amount on your cards.

Whether you’re simply trying to figure out how much to pay on your credit card bill or you’re looking to pay down your credit card debt, this guide is here to help. Here’s what you should know about the right way to pay your credit card bills.

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How to pay your credit card bill

Most credit card companies provide four options for paying your monthly credit card bill. Here’s what you should know about each option.

My payment options on one of my Chase credit cards.

Minimum payment due

Making the minimum payment due will allow your account to remain in good standing, so this is the least you should pay each billing cycle if at all possible. Paying the minimum amount due will allow you to avoid paying late fees or interest at a higher penalty rate — but you will still accrue interest on your unpaid balance.

Even if you pay the minimum balance on your account each billing cycle, your balance may still increase. This can happen when you accrue interest on your balance at a quicker rate than you’re paying it off. So, you’ll want to pay more than the minimum amount due if possible.

Related reading: Common credit card mistakes and how to avoid them

Statement balance

Your statement balance is the total of your charges during the last billing cycle. By paying the statement balance each billing cycle, you’ll avoid paying any interest. You should aim to pay the statement balance on your account by your due date each billing cycle. If you don’t have cash flow issues, it can be a good idea to set up autopay on all of your credit cards to pay the statement balance before your due date each month.

Pay the current balance

Your current balance consists of the total to date. They include any unpaid balance from the previous and current billing cycle. Put simply, your current balance is the most up-to-date snapshot of what you owe.

Paying the current balance (as opposed to the statement balance) is not necessary if you’re looking to avoid interest and fees. Paying the statement balance is sufficient for that. However, paying the current balance can reduce your credit utilization ratio, which may be useful if you’re looking to boost your credit score.

Related reading: 5 ways to use credit cards responsibly

Custom amount

Most card issuers will also let you pay a custom amount. If you’re short on money, paying a custom amount can be useful if you want to pay more than the minimum balance due but less than your statement balance.

But remember that if you pay less than the statement balance, you’ll accrue interest and if you pay less than the minimum balance due, you’ll incur penalties and fees. It’s best to pay the full statement balance if possible.

What is the best way to pay your credit card bill?

Image by Hero Images / Getty Images
(Photo by Hero Images/Getty Images)

It’s best to pay the statement balance on your credit bill by the due date each month. Doing so will allow you to avoid incurring any interest or fees.

You could alternatively pay your current balance, which will be higher than your statement balance, since it includes charges from the current billing cycle. Doing so will decrease your credit utilization ratio.

Related reading: How to earn points and miles with fair to poor credit

Are you supposed to pay your credit card bill in full?

Yes, you should pay your credit card bill in full, if possible. Doing so means you’ll pay the statement balance on your credit card bill and avoid paying any interest or late fees.

Although you may have heard a rumor that carrying a small balance on your credit cards helps your credit score, this is incorrect. By carrying a balance, you’ll pay interest on this balance but reap no benefits for doing so.

Methods for paying off credit card debt

Tensed multi-ethnic couple reading bills at home. (Photo by Portra/Getty)
(Photo by Portra/Getty Images)

If you have a lot of credit card debt, you probably already know the reasons why you need to pay it down. Paying off your credit card debt can save money, reduce stress and boost your credit score.

But paying off credit card debt doesn’t come with a one-size-fits-all solution. Instead, there are numerous ways to tackle the problem, and you should choose the option that work best for you. Below are four smart debt elimination approaches to consider.

Snowball method

If you owe outstanding balances on multiple credit cards, the “snowball method” can be a great way to start chipping away at your debt. With this approach, you pay down your cards in a particular order — starting with the smallest balances and working your way up.

First, make a list of all of your credit cards with balances. Order the cards from the largest balance at the top to the smallest at the bottom. It might look something like this:

  • Capital One: $5,000 balance
  • Chase: $3,000 balance
  • Citi: $2,000 balance
  • Retail store credit card: $500 balance

You’ll need to continue making the minimum payment due on every card, since this will keep your accounts in good standing and avoid late payment fees. On the card with the smallest balance, you’ll pay as much money as you can each month toward wiping out the full debt. In the example above, you’d make minimum payments on your Capital One, Chase, and Citi accounts each month before funneling all of your extra money toward paying off the retail store credit card.

Once you pay off the card with the lowest balance, move up the list to the next account (Citi in the example above). Repeat the process. Only now, you should have more money each month to put toward the second card on your list, since you’ve eliminated the first debt. Follow this pattern until all of your credit cards have $0 balances.

Why use the snowball method?

Each time you eliminate a credit card balance, you’ll begin saving money that was previously going toward interest. Each card that gets paid off to $0 also is a personal victory that can have a positive impact on your credit score. After all, credit scoring models pay attention to the number of accounts on your credit report with balances, so reducing the number of accounts with balances can improve your credit score.

Related reading: From debt to over 20 credit cards: The story of The Points Guy’s personal finance journey

Avalanche method

Although the snowball method is great for building momentum and knocking out small balances quickly, you may still be accruing interest at a high rate on some cards. So some people prefer the “avalanche method.” With this approach, you start with the highest-interest cards and work your way down to the lowest-interest cards.

To use the avalanche method, make a list of all of your credit cards with balances and interest rates. Your list should order the cards from the lowest interest rate at the top down to the highest interest rate at the bottom. It might look something like this:

  • Citi: $2,000 balance with a 13.99% interest rate
  • Retail store credit card: $500 balance with a 15.49% interest rate
  • Capital One: $5,000 balance with a 21.49% interest rate
  • Chase: $3,000 balance with a 23.99% interest rate

As with the snowball method, you’ll need to continue making the minimum payment due on every card on your list, and on the card with the highest interest rate, pay as much money as you can each month. In the example above, you’d make minimum payments on your Citi, Capital One and retail store credit card accounts each month before funneling all of your extra money toward paying off the Chase card.

Once you pay off the card with the highest interest rate, move up the list to the next account (Capital One in the example above). Repeat the process. As before, you’ll have more money each month to put toward the second card on your list, since you’ve eliminated the first debt. Follow this pattern until all of your credit cards have $0 balances.

Why use the avalanche method

The avalanche method eliminates the cards with the highest interest rates first. This means that you’ll pay less interest using this method than when using the snowball method, assuming you put the same amount toward paying off credit card debt. But some experts recommend the snowball method instead of the avalanche method since the achievement felt when paying off small debts quickly may encourage consumers to keep paying off their debt.

Related reading: Paying off debt instead of taking a vacation? Here’s how to make the most of your summer

Balance transfer credit card

Some credit cards advertise introductory balance transfer offers on new accounts. With a balance transfer offer, you may be able to move debt from existing credit cards and consolidate those balances on a single new account. You may even be able to find a no-annual-fee credit card with a 0% intro APR offer.

Be aware that most card issuers charge balance transfer fees, which is an immediate charge that’s added to your account when you move debt to the new card. For example, if a card issuer charges a 3% balance transfer fee you’ll pay $300 to transfer $10,000 worth of debt over to your new account.

Here are some current examples to give you an idea of how credit card balance transfer offers work:

  • Citi® Double Cash Card: 0% Intro APR for 18 months on balance transfers; after that, the variable APR will be 13.99% – 23.99% based on your creditworthiness. Balance transfers must be completed within four months of the account opening. There is a balance transfer fee of either $5 or 3% of the amount of each transfer, whichever is greater.
  • Citi Rewards+℠ Card: 0% intro APR on balance transfers for 15 months from the date of first transfer; after that, the variable APR will be 13.49% – 23.49% based upon your creditworthiness. There is a balance transfer fee of $5 or 3% of the amount of the transfer, whichever is greater. Balance transfers need to be completed in the first four months of account opening.

It’s worth noting that some of your existing card issuers may also offer you low-rate balance transfer opportunities. You can log into your account to search for options or call the customer service number on the back of your credit card to see if any offers are available.

Why use a balance transfer credit card

A 0% or low-rate balance transfer could help you save on interest as you work to pay off your credit card debt. But you should strive to pay off your account balance in full before the introductory interest rate expires and avoid adding more debt to your plate. You don’t want to transfer a balance away from an existing card just to charge up the balance again on your original account.

In some cases, a new balance transfer card can improve your credit score. After all, using a balance transfer can reduce the number of accounts with balances and lower your overall credit utilization ratio. But a new balance transfer card will also result in a new hard credit inquiry and a new account on your credit report, which can decrease your credit score. So it’s worth considering whether using a balance transfer is the right move for you.

Related reading: The best balance transfer credit cards

Personal loan

Another way to potentially speed up your debt pay-down process is by using a personal loan to consolidate your credit card balances. Similar to the balance transfer strategy above, this approach involves using a new account to pay off existing debt.

Unfortunately, you won’t be able to secure a 0% APR on a personal loan like you often can with a balance transfer card. So, if you know that you can pay off your credit card debt quickly, a balance transfer offer may be a better option. If you believe it will take more time to dig yourself out of credit card debt, a personal loan might be a better long-term fit.

Why use a personal loan

If you have good credit, you may be able to secure a lower interest rate on a personal loan than you’re currently paying on credit cards. A personal loan with a lower APR could mean you’ll pay less in interest fees.

Consolidating your credit card debt with a personal loan may also improve your credit score. First, if you pay off all of your revolving credit card debt with a personal loan, your credit utilization ratio should drop to 0%, since a personal loan is an installment account that isn’t factored into your credit utilization ratio.

Moving your credit card debt to a single installment loan could also help your credit in another way. When you pay off multiple cards, you’ll reduce the number of accounts with balances on your credit reports — and the fewer accounts with balances on your credit, the better. Again, a personal loan will trigger a new hard credit inquiry and a new account on your reports, which could have a negative impact on your credit score. But zeroing out your credit utilization ratio to 0% may overshadow this negative impact in many cases.

Related reading: Pay your student loans with a credit card and earn rewards along the way

Bottom line

Credit card debt is notoriously expensive. The average rate on credit card accounts that assess interest is currently 16.61%, according to the Federal Reserve. If you revolve a balance from month to month, the interest you pay can cost you a lot of money.

But if you use credit cards responsibly (i.e., you pay off your balances in full each month and always pay on time), you can benefit. Well-managed credit cards can help you establish a better credit score, protect you from fraud and provide you the opportunity to earn valuable rewards.

Additional reporting by Michelle Lambright Black.

Featured photo by Rawpixel/Getty Images.

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