Pay your credit card dues at the end or middle of the billing cycle? Know what’s better

Dubai: If you are a credit card holder, you will be aware that you must pay your credit card bill in full, on time, every time. This is because when payments are made within a billing cycle, it can help maximize your return on credit or even help increase your credit score. But is there a better way?

“One advantage that late cycle payers often overlook is that they may be able to take full advantage of the credit provided to them each month,” said Rajesh Markara, an Abu Dhabi-based consumer credit analyst.

“Until the time the cardholder actually pays the bill, credit card users can not only earn interest on the money owed, this additional interest that will be collected can add up to a significant amount over months and years.” But that’s not all.

What is a credit card billing cycle?

Billing cycle refers to the period in which credit card charges are generated. If your credit card statement is generated on the 10th of each month, your billing cycle will start from the 11th of the previous month and continue until the 10th of the current month.

Credit card statement

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Are you waiting until the next bill due date?

If you have credit card debt and are tempted to wait until your next bill due date to complete paying the previous month’s balance, this means that each day you may have the money to pay even part of that bill. , it will still be recorded because you owe the full balance.

Conversely, if you pay off the balance in the middle of a billing period, the average daily balance for that period will be halved. Any amount paid at any time during the period reduces the average daily balance, which is the total daily balance divided by the number of days in the month.

Pay at the end or in the middle of a billing cycle? An example

Let’s say a cardholder Mr. John has a Dh1,000 balance, and let’s also assume that he pays off Dh500 of his balance at the end of the billing cycle. John’s average daily balance would then be over Dh1,000 (Dh1,000 plus interest) for each day of the billing cycle.

Now, let’s compare this to other cardholders, for example Mrs. Rachel, who pays off Dh500 in the middle of a billing cycle – whose average daily balance will exceed Dh1,000 for just half of a billing cycle, and then around Dh500 thereafter.

Obviously, Mrs. Rachel will pay less interest during the month. Depending on the balance and interest rate, the savings can be significant. This is how you can time your payments in a billing cycle and use them to your advantage.

Credit card stress problems

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Billing cycle tracking is important for financial planning

“With each credit card having its own billing cycle, once you know the date your credit card bill was created, you can maximize your interest-free period,” says Mirin Raul, a Dubai-based credit and debt adviser. matter.

“So, for example, if you make a purchase right after your credit card charge is created, you can enjoy up to 45 days interest-free, and sometimes more. Also, if you pay off all your credit cards a few days before each statement closes, it will help when you apply for a loan right away, too.

However, if you’re one of the many credit card holders who pay their bills in full to avoid interest, the ‘grace period’ can be a big advantage, adds Raul. Let’s say you have a card with a monthly statement on the 19th of each month with a due date on the 16th of the following month.

What is a ‘grace period’?

The grace period is the period between the end of your billing cycle and your payment due date. During this time, you may not be charged interest as long as you pay off your balance before the due date.

If you then make a large purchase on August 19th, right after receiving your statement, it won’t appear on your bill until September 19th, and will be due on October 16th. That’s basically two interest-free months, which can amount to significant savings for you.

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The main thing is?

“Most credit card companies allow cardholders to adjust the date of their billing period so that the billing due date can be made as soon as the day your paycheck is credited,” adds Markara. “For some, it helps with flexibility and simultaneously keeps ‘credit utilization’ down.”

What is ‘credit utilization’?

‘Credit utilization’ is the percentage of your total credit used out of the total credit available to you. Your ‘credit utilization ratio’ should be 30 percent or less, and the lower you can get it, the better it is for your credit score.

While carrying a balance each month is expensive, experts reiterate that the most obvious benefit is credit that is temporarily extended to cardholders. In addition, when timing credit card bill payments to your advantage, you also save on interest. But this does not apply to all of us.

“If you are a cardholder who is already in debt, rather than deciding to pay at the beginning or at the end of their billing period, you should still work within their means, knowing that it’s not just the amount that gets paid. at the end of the month is important, but so is the timing,” added Raul.

“However, for cardholders unencumbered by debt or fading credit scores, waiting to pay until near the end of a billing cycle will almost certainly increase overall wealth, if only a little at a time.”

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