Understanding how a credit card works can be a little complicated. Many people are under a false notion that they only need to pay the minimum due on time, and can carry forward the balance. This results in people spiralling downward into a debt trap. Paying your bill on time and in full can not only save a lot of money in interest, but will also help boost your credit score. There are many reasons why one should never make a late payment on a credit card bill, but is there any reason why you should pay your dues early?
There are many reasons why one should never make a late payment on a credit card bill, but is there any reason why you should pay your dues early? There are a few reasons that could make early payments beneficial to the credit cardholder.
Besides, credit cards could be boon or a bane depending on how you decide to use them and with so much confusion around getting your first credit card with half knowledge could be dangerous.
But worry not, we are here to help you out with some frequently asked questions regarding your credit card bill, due date and how having a one would impact your credit score or let’s just say financial reputation.
1. Boost your credit score
Boost your credit score: When you make an early payment, it reflects well on your financial status. It shows that you are in control of your debt and financial matters and can clear the credit card bill well before the due date. Any credit card bill payment made in advance or by the due date will help keep your credit score up.
2. Lower your debt-to-income ratio
Lower your debt-to-income ratio: By paying off your credit card debt in advance, you will lower your debt-to-income ratio. The debt-to-income ratio measures how much debt you carry in comparison to the income you earn. If you earn Rs.50,000 and have a credit card bill of Rs.10,000, then your debt-to-income ratio will be 20%. Ideally, you shouldn’t carry more than 40% debt on your income.
3. Avoid interest charges
Avoid interest charges: If you have funds to clear your credit card dues, it is better to do so. This will ensure that you do not miss the payment due date. Therefore, you will avoid any charges in interest and late payment fee. If you miss the due date or pay only the minimum due, your balance will accumulate interest.
4. Free up your credit limit
Free up your credit limit: If you pay your bills in advance, you free up your credit limit and thus can make more purchases. This is useful especially if you anticipate making big purchases on credit card.
5. Makes budgeting easier
If you pay off your credit card dues in advance, you will know exactly how much you have in hand to spend. This will help you budget your expenses better and ensures you do not have a dearth of funds to clear your credit card dues.