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What happens if you don’t pay off your credit card balance in full?

You don't have to pay off your credit card's closing balance, but you'll avoid interest charges if you do, and get access to interest-free days (if your card offers them).

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Richard Whitten

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Key takeaways

  • Your credit card's closing balance appears on your statement. It's the total amount you owe on the card.
  • You don't need to pay off your credit card in full. You can choose to pay the minimum instead, but this means interest charges.
  • If you pay it off in full you save money, take advantage of interest-free days and even improve your credit score.

What happens if you don't pay off your full credit card balance?

  1. You'll get charged interest. Credit cards have some of the highest interest rates around. Depending on your card, the interest rate can range from 8% to 20%. Interest charges on a small balance won't be too expensive, but on a larger balance it will get painful fast.
  2. Your credit card debt will grow. Paying off your full card balance means no debt. Failing to pay it off in full means you're letting your debt grow. If you use your credit card every month and consistently let the balance go unpaid, you'll be looking at a big debt pretty soon.
  3. You could hit your credit limit. Once your card balance reaches your credit limit (the amount you're approved to spend on the card) you might get hit with a fee or your card will decline future transactions. The card will be useless until you bring the balance by paying some of it off.
  4. Your credit score could be affected. Consistently carrying a balance on your credit card will harm your credit score. It's a form of debt after all.
  5. You won't get interest-free days. Most credit cards offer interest-free days. This gives you time to pay off your card spending with no interest. But you only get interest-free days if you pay off your balance in full.

Example: the interest costs of carrying a balance

Let's use Finder's credit card calculator and a simple example.

  • You have a closing balance of $2,000 on your card.
  • The card's interest rate is 18%.
  • You take 6 months to pay the balance off, repaying $351 a month.
  • Your total interest charge = $106.

In 6 months your unpaid balance has cost you an extra $106. And that's assuming you haven't continued spending on the card and adding to your balance.

What are the benefits of paying off my credit card in full?

Paying off your credit card in full is the best idea for most people. You avoid the cost of interest charges, build good credit history and you can take advantage of your card's interest-free days.

If you have a low rate credit card and a small balance, taking a few months to pay the closing balance won't hurt too much.

But if you have a fancy credit card that earns you points and has a purchase rate around 20%, letting a balance go unpaid is going to get very expensive.

What if I can only afford to pay the minimum?

If you can't pay off your closing balance that's OK. As long as you pay the monthly minimum (which is listed in your credit card statement) you'll be fine.

You just need to be aware of how much interest you're paying. And it's a really good idea to make a plan to repay the balance. Just making the minimum payment each month will make even a small debt stretch out for months or years.

Remember: You can pay off more than the minimum too

With a credit card you're not limited to repaying either the entire closing balance or the minimum. You can pay some of the balance off each month.

Making part payments shrinks your closing balance, lowers your overall interest charges and helps you get the balance paid off.

Credit cards that help you reduce your interest charges

If you know you can't repay your card balance in full each month then it's a good idea to look for either:

  • A credit card with a 0% interest rate. Some cards offer 12 months with 0% interest.
  • A credit card with a low interest rate. You can get a card with a low ongoing interest rate.
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Editor

Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio

Richard's expertise
Richard has written 553 Finder guides across topics including:
  • Home loans
  • Property
  • Personal finance
  • Money-saving tips
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