I pay my credit card twice a month every month. I started bi-monthly credit card payments when I got my first job out of college, and I strongly believe that is the best way for the average person to handle their bills.
Match Income to Expenses
I don’t get paid once a month, so why would I pay my bills once a month? I get paid every other Friday. I pay my credit card balances in full each payday. That allows for me to match my income cycle to my expense cycle.
I find this valuable because I don’t have big swings in my bank account balances and my credit card balances are never too high. If I have a rare payday where my credit card balances are higher than my paycheck, I can take a small amount from my checking account to make up the difference. I never need to tap into savings or put a lot from checking into my credit cards.
Keep Balances Low
Paying credit cards bills that are thousands of dollars can be intimidating. It feels like a lot of money is going away at once and the accumulated balance can cause anxiety. Why wait for your balance to build up when you can pay as often as you want?
I keep my eyes on my balances every day using tools like Personal Capital. A quick login gives me my balances and recent transactions in one place. I plan my spending to ensure no balance ever goes too high. I spread out large purchases between paychecks to ensure I never have a credit card balance higher than my paycheck.
Encourage Saving and Investing
I pay my bills twice a month and I put money into saving once a month. After I pay my credit card bill, I do the math on what I need to cover my monthly mortgage and HOA payment plus a small cushion. Any amount over that cushion goes straight to savings or an investment account.
My automatic Roth IRA investments and 401(k) deductions take place on payday, so I have built a system that allows me to take care of my bills and savings on payday as well. It takes a lot less work when you only move money around twice a month and have a set system to take care of it.
Find the Best System for You
While paying each payday works great for me, and I believe is the best system for most people, it is not perfect for everyone. Some people prefer monthly automatic payments, others prefer to save up throughout the month and pay every bill on the same day, and there is not a right way to handle your bills.
I just encourage you to look past the status quo of paying each time the bill arrives. We can be very flexible in how we deal with our personal finances and use that to our advantage.
How do you handle your credit card payments? Do you pay when the bill arrives, each payday, or with another method? Please share what works for you in the comments.
First posted on December 25, 2008, updated December 23, 2012. Image by Tax Credits / flickr.