Should You Carry a Balance on Your Credit Card?

Carrying a balance on your credit card is a surprisingly common practice In fact, according to a 2022 report from CreditCardscom, 59% of Americans don’t pay off their credit card bills in full each month.

But just because a lot of people do it, does that mean it’s a good idea? This guide will tell you if you should carry a credit card balance or not.

What Does “Carrying a Balance” Mean?

You only pay part of your credit card bill by the due date when you carry a balance. The rest of the balance is carried over to the next billing cycle.

For instance, let’s say you owe $1,000 on your credit card bill. You have a balance if you pay $500 by the due date and then carry over the other $500 to the next month.

When you carry a balance, you usually have to pay interest on the amount you still owe. We’ll talk more about how that works soon.

The True Cost of Carrying a Balance

Here’s an example to demonstrate the costs of carrying a credit card balance month-to-month:

• You charge $1,500 to your credit card, which has an 18% APR
• Your minimum payment due is $30
• You pay the minimum each month ($30)
• After 12 months, you’ve paid $360 total but still owe $1,414
• You’ve paid $174 in interest charges

As you can see, paying the minimum due and carrying a balance results in hefty interest fees. You also don’t make much progress on reducing the actual balance.

The longer you carry a balance, the more interest builds up Credit card interest is usually calculated daily, starting the day a charge posts to your account.

Does Carrying a Balance Help Your Credit?

One common credit myth is that carrying a small balance from month to month can help your credit score. But that simply isn’t true.

FICO, VantageScore, and other credit scoring models do NOT give extra points for carrying a balance. Your payment history (whether you pay on time) and credit utilization (the percentage of your limit you use) are much bigger factors.

Speaking of utilization, carrying a balance can actually hurt your credit if it pushes your utilization too high. Try to keep your utilization below 30%, and lower is better.

The bottom line is carrying a balance does not help your credit score. Paying your bill on time and in full is ideal.

When Does Carrying a Balance Make Sense?

While paying your bill in full every month is usually smart, there are some situations where carrying a small, temporary balance could be reasonable:

• You have a major unexpected expense
• You’re doing a 0% APR balance transfer to save on interest
• You can’t pay your full balance by the due date (once in a blue moon)

The key is having a plan to pay off the balance ASAP before interest kicks in. Avoid letting it drag out month after month.

Tips to Avoid Carrying a Balance

Here are some tips to help you pay your bill in full each month and avoid costly credit card interest:

• Track your spending with budgeting apps or spreadsheets so you know what you can realistically afford to charge
• Make multiple payments during the month to keep your balance low
• Set up autopay for at least the minimum due as a safety net
• Ask for a higher limit to lower your utilization ratio
• Use balance transfer or 0% APR cards strategically for big purchases
• Build an emergency fund to cover unexpected expenses
• Consider debt payoff strategies like the debt snowball or avalanche methods

When Is Carrying a Balance a Bad Idea?

Carrying a credit card balance should generally be avoided in these scenarios:

• You don’t have a plan for paying off the balance
• You’ll get charged high interest fees
• It will push your credit utilization too high
• You have to pay late fees or minimum payments
• You have to take out cash advances or use other cards
• You can afford to pay in full but choose not to

These are signs you’re falling into a dangerous debt trap. Work on reducing your reliance on credit and examine your budget and spending habits.

Should You Ever Carry a $0 Balance?

While paying in full is smart, you don’t necessarily need to carry a $0 balance every single month. As long as you pay your bill by the due date, you can report a small balance on your next statement.

Just keep your utilization low. Some experts say letting a tiny balance (say $20) report occasionally can show you do use your credit. But it’s far more important to pay on time consistently.

Key Takeaways

Carrying a credit card balance means paying less than your full statement balance and owing the rest the following month. Here are some key points to remember:

• Carrying a balance typically results in interest fees, which add up over time
• It does NOT help your credit score – paying in full does
• Occasionally carrying a small, temporary balance you can pay off quickly may make sense
• Avoid carrying a balance month-to-month without a payoff plan
• Focus on paying your bill in full and on time to build strong credit

Overall, carrying a perpetual credit card balance is an expensive habit and generally not financially wise if you can avoid it. But occasionally reporting a low balance you quickly pay off is fine.