Interest rates apply to the outstanding balance in your credit card report. This allows card issuers to generate income from every cardholder who carries a balance. Nevertheless, it is not required that you always leave a certain amount unpaid in your credit card bill. In fact, it is better for you to have 0 balance during every billing period as it can give multiple benefits not only for your credit, but also to your financial health.
Preserving good credit
A good credit report can do wonders to your financial future. In fact, even some employers check your credit report to gauge your ability to handle responsibility. In order to have excellent credit, you must utilize your credit cards and pay your bills regularly. While paying your credit card bill, you can opt to pay for the minimum amount but it is better to pay off the entire sum and maintain a 0 balance.
This is because despite paying the minimum amount, you may fail to make future payments as the balance grows — and it will eventually. Consequently, this hurts your credit score and if you have this going on for a while, it will ultimately destroy the credit history you have worked so hard to build. Therefore, it is advisable to pay your entire bill and start each billing cycle on a 0 balance credit card account.
Now, speaking of credit score, one of the factors included in the evaluation of your credit score is the ratio of balance due to your overall available balance. It takes simple arithmetic to understand that the lower your balance due, the better your credit score is going to be.
Avoid accumulating debt
Another amazing benefit you can get from leaving 0 balance on your credit card bill is the advantage of not having to pay interest charges. Interest charges apply to outstanding balance on your credit card. Hence, you save money if you simply opt to pay the full amount every time your bill arrives.
You may be tempted to pay only for the minimum amount on your bill, as it may seem like a cheaper option but in the long run your balance incurs interest, which gradually increases as you mount larger amounts of debt.
In this scenario, you may risk accumulating debt, which may later on create major financial problems. It is fine to leave a little balance every now and then as long as you have the means to pay for the interest charges it accrues over time. If not, then you are better off paying the entire sum.
Develop healthy spending habits
When you pay your entire bill every time, it becomes a part of your system and eventually becomes a habit. Consequently, doing so will positively affect your personal and financial life as it allows you to make responsible financial decisions. For instance, if you are initially used to spending a lot with your credit card, paying your entire bill or leaving 0 balance will make you realize the effect of overspending when you see how much money you lose with such behavior.
Incurring a hefty credit card bill is possibly the biggest fear cardholders face as it signifies the start of deteriorating credit rating and compounded financial problems. Therefore, leaving 0 balance on your credit card is a great idea as it will eventually mold you into a disciplined spender and ultimately lead you toward a better financial future.
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