Carrying a Credit Card Balance vs. Paying in Full?

If you use a credit card, you generally have two options at the end of each billing cycle: pay your balance in full or carry it over to the next month. Most of the time, paying in full is the better choice.

Is it better to pay off your credit card in full?

A common misconception is that carrying a balance from month to month helps build or improve your credit score. In reality, you do not need to carry a balance to build credit.

When you carry a balance, your credit card issuer will typically charge interest on the amount you owe. Credit card interest rates can be relatively high, and because interest is often compounded daily, those extra charges can add up quickly.

Your credit card balance can also affect your credit utilization ratio — the amount of your available revolving credit that you’re using. Using a large portion of your available credit can negatively affect your credit scores, even if you make all of your payments on time.

For these reasons, when financially possible, paying your credit card balance in full by the due date can help you avoid interest charges, keep your credit utilization lower, and leave more money available for savings, investments, or other financial goals.

Why carrying a credit card balance is expensive: See the cost in numbers

Carrying a credit card balance can make an everyday purchase cost a lot more than the original price.

For example, say you make a $3,000 purchase with a credit card that has a 24% APR. Instead of paying it off, you decide to make fixed payments of $75 each month. At a 24% APR, that works out to roughly 2% interest per month, so you could pay about $30 in interest in the first month on a $1,500 balance.

At $75 per month, it would take about 25 months to pay off the balance, and you’d pay roughly $350 in interest. That means your $1,500 purchase would end up costing you around $1,850.

Even if you make your payments consistently, carrying a balance can add hundreds of dollars to the cost of something you’ve already bought.

What if you pay the minimum amount due

Paying only the minimum keeps the account current and avoids late payment, but it can also take much longer to pay off your balance and cost you more in interest over time.

Let’s use the same example: you have a $1,500 balance at 24% APR. If your minimum payment is around 2% of the balance, your first payment would be about $30. Since 24% APR is roughly 2% per month, about $30 in interest could be charged in the first month alone. That means your payment may not reduce the balance at all.

To actually start paying it down, you’d need to pay more than $30 each month.

When carrying a balance may make sense

Some credit cards offer a 0% introductory APR on purchases and/or balance transfers for a limited time. During the promotional period, you can carry a balance without paying interest, but you’ll still need to pay back what you owe. Once the promotional period ends, any remaining balance may begin accruing interest at the card’s regular APR.

Used responsibly, a 0% intro APR credit card can be a useful tool for spreading the cost of a large purchase over several months without paying interest. The key is to pay off the balance before the promotional period ends.

Outside of promotional offers, though, there’s generally no benefit to carrying a balance on a credit card from month to month. You can build and maintain good credit without paying interest. So, when financially possible, paying your balance in full by the due date is usually the best approach.