Whenever you receive your monthly credit statement, the first thing you should be doing is pay credit bills. Most of us, if not all, always find an excuse to be late in payment. Here are four reasons that will convince you to pay your credit bill before the due date.
1. Accrue less interest
If you pay your credit card bill within your due date you accrue less interest. Although you are given interest-free grace period, paying your bill before due date is still beneficial as interest is charged on the average of your balance for the entire period. So if you pay your bill before the due date you lower your average balance and eventually less interest will be charged on it. It is also important to know that interest is charged on a compound basis. It means that you have to pay on the interest charged on the principle amount. Suppose, the credit bill you owe is $100 and you are charged 10% interest on it. Now, if you pay your credit bill late you have to pay 10% interest on $110 not on the original amount of $100. So paying your bill early even before the due date will lead you to the cost saving.
2. Manage your budget
Pay your credit card bill on time and manage your budget effectively. Live according to your means by keeping your credit limit within your expenses. Doing so will make it easier for you to budget without incurring high interest rates. It is always wise to make the next credit bill payment before the due date so that you may not have the money available to incur unnecessary expenses and go out of the track.
3. Improved credit scores
If you pay your credit card bill before the due date will lead you to improve your credit scores. As you know that at the end of every period, a statement is issued which reports your outstanding balance as debt to credit reporting agencies. This report is based on the snapshot taken during your statement period. Avoid interest charges by keeping your credit balance in check. If you don’t pay within the due date will your debt utilization ratio will be high decreasing your credit score.
4. Avoid risk of late fees and penalties
Pay your credit card bill before the due date to avoid the risk of interest on late fees and penalties. Most credit card issuing banks and institutes send you reminders to pay your bill before the due date. You can set up reminders of dates on your personal calendar. But it’s always better to avoid the risk in the first place as paying late may damage your credit scores which is crucial if you are applying for new loans. Your credit score is one of the deciding factor whether you qualify for a new loan or not. A good credit score lowers the interest rate on your new loans.