Often, consumers are advised to make weekly or multiple payments throughout their credit card billing cycle. However, there’s not much context given with this advice. This could leave consumers tying up their funds unnecessarily.
Let’s consider the following credit card account activity:
- The billing cycle ends with a $0 balance
- There are no pending transactions on the account
- When the next billing cycle begins, a $2,000 purchase is made
- There is no other activity on the account
- There is no interest being accrued
Given everything that we know about the consumer’s credit card account activity, there would be no reason to make an early payment. The customer receives no benefit in making an early payment in this scenario.
If the customer does start making payments before the billing cycle even ends, they would miss out on the benefit of having a grace period (if their credit card issuer provides one). They’d also lose access to funds that they used for their early payment. These funds could be used for other things that were either more important or could have earned the customer money (like a savings account).
Let’s say that the advice to make multiple payments is meant to apply to months in which the payment is due. Making early or multiple payments during the billing cycle would only help the credit cardholder if interest is being accrued. If it is and the credit cardholder can afford to part ways with the funds that will be devoted to early an early payment, the early payment will decrease the customer’s interest expenses.
Some people also believe that when they reduce their credit card balance, the new balance is reported to the credit bureaus automatically. Although Chase has been known to report balances to credit bureaus when the credit cardholder pays off their balance, practically every other credit card issuer does not follow this process.
Making early or multiple credit card payments makes sense if interest is being accrued and the objective of making early/multiple payments is to reduce interest costs. But, before doing so, credit cardholders should ensure that the timing of the payment/s will not cause conflicts with their budget.