Despite what you may have heard, making part payments doesn’t stop you being charged interest. Here’s why.
Making a part payment to your credit card is better than only paying the minimum monthly each month, but it’s far better to repay your balance in full.
What Do We Mean By “Part Payment?”
A part payment is bigger than your monthly minimum payment, but smaller than your total outstanding balance. A part payment will reduce what you owe, but won’t clear your debt completely.
Some people believe making part payments stops you being charged interest. Unfortunately that’s not the case. Here’s a look at how part payments actually work.
A Part Payment Will…
When you make a part payment you reduce the amount you owe your card provider. This allows you to keep using your card, and stops you running into any late fees. Because interest is charged on your outstanding balance, by reducing your balance you’ll reduce the amount of interest you’re charged.
A Part Payment Won’t…
Part payments don’t stop you accruing interest. The only way to avoid interest is to fully repay your balance every month. Anything left unpaid will be charged interest. You’ll also lose the benefit of your interest free days for the next billing period.
Whilst part payments won’t help you during this billing period, they will help you during the next. This is because interest is charged daily, so by making part payments throughout the month you’ll reduce your balance and interest charges for the next billing period.
Credits Don’t Equal Payments
If you buy something from a store and subsequently get a refund it won’t be counted as a payment. On your credit card statement you have a section where payments are listed. A credit won’t show up here, but will instead be in the section below where “Other credits or payments” are listed.
Repay Your Balance In Full
As always our advice is wherever possible repay your outstanding credit card balance in full each and every month. It’s the only way to avoid interest and get the maximum benefit from your interest free days.
Part payments throughout the month are useful because they help minimise the interest you’re charged, but whenever you can keep your balance at $0. If you’re not sure you’ll be able to clear your balance one month, making part payments is a good idea. If you are left with an unpaid balance it’ll be smaller and won’t attract too much interest.
If you’re finding it hard to fully repay your balance or feel tempted to spend more than you can afford, speak to your bank’s customer service team and get them to reduce your credit limit.