When you apply for a credit card, the first thing you need to remember is that you will receive a monthly statement with a minimum monthly amount due. While it is recommended that you pay this minimum amount, it is in fact in your best interests to pay as much as you can over and above this figure. Here are some of the advantages of paying more than the minimum monthly amount on your cards.
Pay less interest
This comes down to basic math. The more you pay, the faster you will pay the amount off and the less interest you will be charged as a result. For example, if you pay off $2,000 over a period of 12 months, you will accumulate interest every month. Of course, the interest will become less and less as the balance decreases, but you will still be paying interest for a year. If, on the other hand, you make a plan to pay this amount off within 6 months, you will automatically pay less interest. Firstly, you will not be paying interest for a full year but rather half a year. Secondly, by getting the balance lower faster, your monthly interest for those 6 months will be lower. Interest is calculated as a percentage of the total amount due. The lower this amount, the less interest you pay.
Pay your balance off faster
As briefly mentioned in the point above, making larger payments helps you pay off your credit cards faster. Making the minimum payments might seem like a good idea, but you can quite easily reach a point where your monthly minimum hardly even covers the monthly interest! In other words, you're paying the interest each month and making very little progress on ridding yourself of debt.
Better credit score
Maintaining a high credit score is a top priority for everyone these days. In order to do this, you need to make use of your card regularly but not excessively. You should also pay more than the minimum in order to bring your balance down faster. This shows credit providers and banks that you are financially responsible.
Prepare for a mortgage application
Your credit score will directly affect the approval or denial of your mortgage application. If you are planning on buying a home within the next few months or years, you will need to analyze your credit score and take any necessary action to improve it. One way of doing so is by making sizeable payments into your credit card each month.
Increase available credit
The more you pay off your credit cards, the more credit you will have available. If you keep your credit card balance low, you won't need to max it out or suffer from extreme stress the moment you have to pay for something essential like a new fridge. You can spend confidently when you know that your balance is comfortably low.
Don't forget, different types of credit cards offer different benefits. Their fees and credit card terms also vary depending on the card itself. In order to truly benefit from any credit card, you need to make sure that it caters to your needs and suits your spending habits. Take a look at our Canadian credit card comparisons and details at Wallet Savvy before choosing your next card!