Credit cards can be a helpful tool for managing expenses and building credit, but failing to use them responsibly can lead to financial troubles. One important aspect of responsible credit card usage is understanding how to make payments. While it may be tempting to only pay the minimum balance on your credit card statement, doing so can result in long-term debt and increased interest charges. On the other hand, paying the full statement balance can help you avoid interest charges and maintain good credit standing. But what happens if you only pay your credit card statement balance? In short, you will avoid interest charges on the remaining balance, but you may still incur interest on future purchases and carry over balances from month to month, which can lead to increasing debt. It’s important to understand how credit card payments work and to make payments in a timely manner to avoid financial hardship.
The Impact of Paying Only Your Credit Card Statement Balance
1. You may still have to pay fees:
Even if you pay your credit card statement balance in full, you may still be responsible for paying fees such as annual fees, late fees, or cash advance fees, depending on your credit card issuer. Annual fees are charged once a year for the privilege of having the credit card, while late fees are charged when you don’t make a payment by the due date.
2. Your credit utilization ratio will be lower:
Your credit utilization ratio is the amount of credit you’re using compared to the amount of credit available to you. By only paying your credit card statement balance, you’ll lower your credit utilization ratio because you’re only using a portion of your available credit.
3. Your credit score may still be affected:
While paying your statement balance in full is good for your credit score, if you have a high balance on your credit card, your credit score may still be negatively affected. This is because credit scoring models also look at your credit utilization ratio, which may be high if you have a high balance on your credit card.
4. You may still have to pay interest on new purchases:
If you continue to use your credit card and don’t pay off the full balance each month, you’ll be charged interest on the new purchases you make.
5. You won’t be making progress on paying off your debt:
If you’re carrying a balance on your credit card and only paying the statement balance, you’re not making any progress towards paying off your debt. You’ll need to pay more than the minimum payment or pay off the full balance to make a dent in your debt.
Bottom line:
In summary, paying only the statement balance on your credit card can help you avoid interest charges on that balance, but it may not prevent interest from accruing on new purchases or carrying over balances from month to month. Over time, this can lead to increasing debt and financial challenges. To use credit cards responsibly, it’s best to pay the full statement balance each month and avoid carrying a balance. Additionally, making payments on time and managing credit card spending can help maintain good credit standing and avoid financial difficulties in the long run.