Chances are, you’ve heard and believed at least one “credit card myth” before. For example, people love to talk about the fact that pursuing credit card rewards will ruin your credit – a “fact” that is not only unproven, but patently false. Others love to spread the idea that having more than one or two cards spells doom for your credit score, and thus, your financial future. (Also false.)
Although I stand in awe of the many credit card myths that continue to circulate, I forgot a big one the last time I wrote on the issue. Apparently, some people still believe that you won’t earn points on your credit card if you pay it off early. And this one – while well-intentioned – really bugs me for some reason.
Will You Still Earn Points If You Pay Off Your Card Early?
Whether you’re creating a budget with a credit card or simply using your card occasionally to earn rewards, the rewards component of the equation stays the same:
When you use a credit card for your purchases, you earn the same amount of points, miles, or cash-back on your spending whether you pay your balance in full before the statement closes or not.
Let’s say you put your $1,000 monthly daycare bill on your credit card bill today then set up online bill-pay to send your card $1,000 tomorrow. A week later, your statement closes at zero. What happens?
The same thing happens as if you had carried that balance over and allowed your statement to close with a $1,000 balance, that’s what. You’ll earn the points, miles, or cash-back rewards you were due on the $1,000 daycare expense you charged — whether you prepay or not.
Why Would You Want to Prepay Your Credit Card Bill Anyway?
The fact that you can pay your bill early, or pay it multiple times per month, is extremely important if you’re using credit cards to earn rewards – or simply to build your credit. Here’s why:
- Utilization: Around 30% of your credit score is based on the amount of money you owe vs. your total credit limit, or your “utilization.” Allowing your statement to close with a balance owed will increase your utilization, a move that could decrease your credit score. Meanwhile, prepaying your credit card balance and allowing your statement to close “at zero” allows your utilization to stay at zero.
- Budget success: Paying off your balance a couple times per month or more can help you stay “on track” with your budget, and ensure you don’t fall behind.
- Maximizing rewards: Being able to pay your balance in full as often as you like can help you use credit responsibly without fear of losing out on rewards. When you have a low credit limit, being able to pay your balance down to zero often also allows you to earn more rewards over time.
Other Reasons You May Want to Pay Off Your Credit Card Early
I’m not shy about the fact that my husband and I use a zero-sum budget for our family finances. This form of budgeting requires us to intentionally “spend” all of our income each month, with things like retirement savings and investments receiving payment as if they were bills.
In the meantime, it also requires us to only keep enough money in our checking accounts for our regular and estimated bills, using those funds to pay for stuff as the month progresses – a feat that wouldn’t be possible if we weren’t able to pay off our credit cards early.
- Related: How and Why to Use a Zero-Sum Budget
If you use this type of budget – and use a credit card for daily spending in order to rack up rewards – then you know exactly why this matters. Still, there are other reasons why almost anyone would want to pay off their credit card early.
Let’s say you’re leaving on a two-week vacation in Thailand where you’ll have no Internet access. (Lucky you.) Feel free to prepay your credit card bill before you leave so you don’t have to worry about due dates or late fees.
Another possible scenario where it makes sense: Let’s say you saved $4,000 for new furniture, but decide to put it on a rewards credit card to rack up the miles. After the purchase, you’re afraid you’ll blow your savings while you wait for your credit card statement to close and the bill to arrive in the mail.
What do you do? For heaven’s sake, hop online and pay that bill pronto. There’s no use stressing when you’re going to earn the points or miles you’re due regardless.
Another reason I pay our credit cards off every week is much more simplistic; I have a sincere hatred and disdain for debt. And for some reason, I cannot imagine letting a balance sit for 30 days without mailing in a check or bill and making it disappear. I might be Type A. Can you tell?
Regardless, you don’t need a good reason to pay off your credit card bill early. Pay it off early because it bugs you, because you hate debt, because you’re trying to stay on budget, or because you just feel like it.
Just don’t fear missing out on rewards because of it. That’s another credit card myth that’s been busted, and it simply isn’t true.
How many times do you pay your credit card bill each month? Do you pay your bill before the statement closes?