There are a lot of myths and facts out there about credit, debt, and how to effectively manage your credit score. One of these is the myth that maintaining a balance on a credit card can help you raise your score faster than paying off the card each month. This simply is not true. If you have a credit card, you should make it a priority to pay its balance in full every month. Not paying off your credit card can start you on a slippery slope to high levels of debt, which can require bankruptcy to manage if they spiral out of control.
Maintaining a Balance on Your Card will Not Help Your Credit Score
Do not take this to mean it will actively hurt your score, though. Making your payments on time and keeping a low utilization rate are what improves and maintains your credit score. When you consistently make your payments on time, there is no difference between carrying a low balance and paying the card off in full.
Paying Your Card in Full Each Month is a Good Financial Habit
When you make it a priority to pay off your credit card in full each month, you are disciplining yourself and building a habit that can serve you for the rest of your life. For most people, the easiest way to control credit card spending is to give themselves a hard rule that a credit card is to be treated like a debit card, which means that they cannot spend more money with the credit card than they can afford to spend at that moment. By eliminating the mindset of “buy now, pay later,” you can avoid accruing debt you cannot pay back.
You can Save Money by Paying the Card in Full
When you carry a balance on your credit card, you have to pay interest on that balance. So even though it can feel like you are spending a lot of money to pay your credit card in full each month, you are actually saving money in the long run by not having to pay interest. Interest compounds, which means that over time, your balance of a few hundred dollars can become a few thousand dollars if you do not make an active effort to pay it down.
Work with an Experienced Arlington Heights Bankruptcy Lawyer
Credit cards are not your enemy. Though they can create difficult situations if they are not used responsibly, they are not inherently harmful or exploitative. Responsible credit card use should be part of your bankruptcy recovery plan. To learn more about what you should and should not be doing while you work through your bankruptcy case and navigate the years that follow, speak with one of the experienced bankruptcy lawyers on our team at Newland & Newland, LLP. Contact our firm today to schedule your initial consultation in our office. We serve clients in the Arlington Heights, Palatine, Rolling Meadows, Libertyville, Mundelein, Buffalo Grove, Schaumburg, Elk Grove, and Itasca areas.
(image courtesy of Mike Petrucci)