How to Pay Your Credit Card Bill: Tips to Avoid Late Fees

A couple sitting together doing finances.

We all hate receiving monthly bills. It’s the worst. And while most, like rent, are easy to pay because they arrive on the same date each month and are the same amount, credit card bills are a different story.

There are lots of dates and amounts listed on credit card bills to keep track of. And what’s even more confusing, credit card companies leave it up to the cardholder to decide when and how much to pay off. Like paying just the minimum due, or paying off the balance.

It’s important to understand how to pay your credit card bill to avoid interest fees and establish a positive credit history. In this post, we’re going to give you the low-down on credit card payment strategies: how to pay your credit card bill, how much to pay, when to pay and tips on ways to easily manage payments.

To kick this off, here’s the most obvious (and most important) tip: you should pay the full statement balance on your credit card bill by the payment due date.

Phew. Now that that’s out of the way, let’s get into it.

Understanding Your Credit Card Bill

Before you can confidently decide the best approach for paying your credit card bill, it’s essential to understand what’s on the statement you receive each month. Names or formatting will differ based on the issuer, but each statement will contain the same essential components:

  1. Statement balance: This is the amount due for this statement period; sometimes called the new balance or outstanding balance.
  2. Minimum payment due: The lowest amount you can pay before the due date. It is either a fixed amount or a percentage of the balance based off the credit card terms.
  3. Payment due date: If the minimum payment isn’t made by this listed date, you will be charged a late fee.
  4. Minimum payment warning: This shows you how long it would take you to pay off your current balance if you only made minimum payments. It also shows what the interest would look like.
  5. Account summary: This shows the overall details of how the current balance was calculated. This is calculated by starting with the previous month’s balance, subtracting recent payments and credits, and then adding purchases, interest charges, and fees. Or, if you prefer a mathematical formula:

Previous Month’s Balance – (Recent Payments + Credits) + Purchases + Interest Charges + Fees = Account Summary Amount

account summary and payment information

You’ll also see all the payments and credits you’ve made that will be factored into your current balance, new purchases made during the billing period, fees, interest charges and any additional rewards or perks with your given card. 

When to Pay Your Credit Card Bill

Again, for the people in the back: we highly recommend that you pay the full statement by the payment due date (please). This is valuable for a few reasons: one, it has a positive impact on your credit and two, it notifies lenders that you can borrow money in a responsible way. It’s important to allow time for your payment to process and it can be helpful to pay a few days before the statement closing date for this reason. 

Credit card issuers differ in how long they take to post a payment to your account, so it’s worth checking with your specific bank to verify what counts as an on-time payment and how long it takes for payments to be posted to your account.

However, it’s not required that you pay the entire outstanding balance right away. Typically—but not always—credit cards have a grace period, which is the time between your billing cycle’s completion and your statement’s due date. During this period, you will not accrue interest on purchases made during the previous billing cycle.

Pay the full statement balance by the payment due date to avoid debt and late fees

If you cannot afford to pay the full statement balance, we recommend at least paying the minimum payment by the same due date. This can help you maintain your credit card debt and avoid any expensive late fees. Making minimum payments is a good option if you use a card with a 0% intro APR offer and take advantage of the 0% interest and balance transfers. While you’ll still need to make the minimum payments each month to avoid late fees, you’ll have more time before the bank charges interest.

That being said, we recommend that you have a plan in place to pay off the full balance before the grace period ends to avoid paying additional interest. If you don’t, you may have to pay retroactive interest from the date you began using your card (yikes).

Is There Any Benefit to Paying Early?

Some over-achievers like to pay off their accounts early before the statements are even generated, meaning that when the bank generates the statement, it will show a $0 balance. As long as you have a grace period, this will not save you any money on interest, so it’s not entirely necessary. However, if you’re aiming to improve your credit score, paying early can help lower your overall credit utilization, which is the ratio between your total credit card balance and total credit limit. 

Should You Carry a Balance?

Another common misconception is that carrying over a balance from month to month will help build credit; however, this is not the case. What helps to build credit is paying your bill on time. In fact, we recommend you avoid carrying over a monthly balance and instead try paying in full when possible to avoid hefty interest charges. 

How Do Interest Fees and Late Fees Work?

You are charged late fees when you don’t make payments on time. Because they can quickly pile up and become unmanageable, we strongly suggest paying off the entire balance each month to avoid this.

Interest Fees

If you make a minimum payment, you’ll be charged an interest fee, also called a finance charge. Credit cards assess interest charges based on your daily average balance. Interest applies to this daily average balance over the course of a billing period, and you’ll start incurring interest expenses daily once you start carrying a balance on your card.

How to calculate how much interest you pay daily: credit card's apr / 365

One way to see if you can figure out how much interest you pay daily, you can divide your credit card’s APR (annual percentage rate) by 365. It’s important to note that rates vary by the individual and by the credit card you use. Those with better credit scores will have lower interest rates. Check your card’s terms to make sure you understand how your interest is being calculated.

Most credit cards will allow you to set up online payments that automatically come out of your checking or savings account. This will help ensure that your payments are made on time or before the due date each month—a great way to help avoid late payments. 

Late Fees

You are charged late fees when your payment is received after the due date or grace period (if you have one). If you have an outstanding balance on your card, you typically have a minimum of 21 days before that payment is due. If you fail to make this payment, you will be charged a late fee.

Some cards have tiered late fees based on your credit card balance while others are fixed, regardless of the balance on your card. By law , issuers can charge a $29 late fee the first time you’re late (or, if you’ve been late on a payment in past 6 months, they can charge up to $40).

Like we said earlier, we recommend setting your automatic payments to come out a few days prior to the payment due date to allow time for processing. When setting up autopay, you’ll be able to select the date and also decide if you’d like to pay the minimum amount, a custom amount or the statement balance.

Tips for Staying on Top of Credit Card Payments

Admittedly, it’s difficult to stay on top of credit card payments with all your other bills piling up. We’ve put together some tips that will help you avoid missing a payment or contracting a late fee:

  1. Set up alerts. You can easily set up text or email alerts that will notify you when your payment due date is coming up.
  2. Consolidate payment dates. If you have multiple cards, you can request the same payment date by simply calling your card issuers or making a request online. This will help eliminate having to remember multiple payment dates.
  3. Understand the terminology. Often, you’ll receive late payment or minimum payment warnings that will highlight the consequences of not making certain payments. By educating yourself on these concepts, you can better respond to these warnings.
never miss a payment

While different credit cards have rewards and perks unique to them, the process of paying your bill ultimately remains the same. It may seem overwhelming at first, but if you commit to paying the full statement balance by the due date, this can help establish a positive credit history and ensure that you avoid late fees and interest. 

Posted in Credit 101
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