Credit cards are an excellent financial tool for those who know how to use them wisely. Credit cards give its users the ability to make cashless payments and they can help to raise your credit score. They also allow card holders to make secure payments online without the concern of potential fraudulent activity on the card, as payments can be charged backed by credit card companies.
However, when using your credit card frequently, it is easy to fall into the trap of only making the minimum monthly payments, as opposed to paying your card off in full, and, therefore, incurring credit card debt. That is what credit card providers are aiming for, as that is how they generate a profit.
In this article, you will be introduced to three reasons to always pay off your credit card statement in full each month.
You won’t go into debt and incur interest costs
The main reason you should always pay off your credit card statement each month is so that you don’t fall into the debt trap. If you are spending more than you are earning by using a credit card you will soon find yourself in debt that becomes increasingly harder to pay off due to high interest payments. The APR on credit cards ranges from 10% to 30%, which can add a substantial amount to your unpaid credit card balance each month you don’t pay it off.
You can benefit from cash back rewards
Many credit card providers like to lure in new customers by offering incentives such as “free” air miles or cash back rewards.
If you pay your credit cards off in full every month, you can actually benefit financially if you are using cash back credit cards. Cash back credit cards offer you cash back for purchases you make using your credit card. The idea behind why credit card companies are offering this reward is to incentivize card holders to use their cards and to subsequently incur credit card debt, which will then earn the credit card provider more income than the cash back rewards paid out to the card holders.
Hence, ensure that you always pay off your credit card in full and enjoy the free cash you earn from using your card.
You will boost your credit score
Owning a credit card and paying it off in full each month will help you to boost your credit score for three reasons. Firstly, by owning a credit card you have opened a new credit line and are establishing a credit history. Secondly, by paying off your credit card statement on time each month you do not have a high level of outstanding debt, which would be a negative factor affecting your credit score. And thirdly, your credit utilization ratio will remain low if you always pay your cards off in full. A low credit utilization ratio will also help you to give your credit score a boost.
A credit card can be a financial blessing or a curse depending on how you use it. If you are using it to spend more money than you actually have, you will inevitably end up paying the price in the form of high interest payments and a lower credit score. Alternatively, if you pay off your credit card bill in full and on time each month, your credit card can be a great tool for you to help you stick to your budget, benefit from financial and non-financial credit card rewards and boost your credit score.