While most of us focus on making timely payments to avoid interest and fees, have you ever wondered what happens if you overpay your credit card? Whether it’s part of your credit strategy or some autopay mistake, overpayment happens—sending you into a negative balance. Here’s what to know about the pros and cons of overpaying your credit card, and when intentionally doing so might be the right move for you.
What does it mean to overpay your credit card?
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First things first: Overpaying your credit card means sending a payment that exceeds your outstanding balance. This situation might arise accidentally, like when you miscalculate your current balance or make a payment before all charges have been processed. On the other hand, intentional overpayment can also occur when you want to keep a credit balance for specific reasons. Let’s dive into those below.
When credit card overpayment makes sense
Upcoming large purchases: If you know you’ll be making a big purchase soon, overpaying can offset the upcoming charge and reduce potential interest costs.
Managing minimum payments: In situations where your income is irregular, you can use overpayment to cover minimum payments during lean months, helping you maintain a positive credit history.
Before a vacation: If you’re planning a vacation where you won’t be looking at your credit card statement, and you want to avoid high credit card bills upon your return, consider overpaying to create a buffer that covers potential expenses.
Pros of overpayment
Interest savings: One of the most significant benefits of overpayment is reducing or even eliminating interest charges on your next billing cycle. When you carry a balance on your credit card, interest accrues daily based on the average daily balance. Overpaying can help lower this balance, leading to reduced interest charges.
Emergency fund alternative: Some people intentionally keep a credit balance as a form of emergency fund. While a traditional savings account is recommended, maintaining a positive credit card balance could provide a temporary financial cushion in unexpected situations.
Managing returns and disputes: If you return a purchased item or are in the midst of a billing dispute, having a credit balance can serve as a buffer. The refund amount can be applied to your credit balance, offsetting future charges.
Cons of overpayment
Blocked credit limit: Credit card issuers may cap the amount you can overpay, preventing you from using overpayment as a regular strategy. It shouldn’t be used as a workaround to score a higher credit limit, either—your credit limit stays the same no matter what.
Opportunity cost: Money you overpay to your credit card isn’t readily available for other investments or expenses. While you might save on interest charges, you could miss out on potential gains elsewhere.
Account closure: In extreme cases of consistent overpayment, the credit card issuer might close your account to prevent misuse. While overpayment in and of itself doesn’t hurt your credit score, account closure certainly does.
How to overpay your credit card wisely
If overpaying your credit card makes sense for you, here are some tips to go about it strategically.
Check your balance: Before overpaying, ensure you know your current balance. You can do this by checking your most recent statement or logging into your online account.
Calculate your overpayment: Determine the amount you want to overpay. Consider factors like potential expenses, upcoming purchases, and your budget.
Contact your issuer: Some credit card issuers allow you to request a credit balance refund. Contact their customer service to understand the process and any limitations.
Monitor your account: Keep an eye on your account to ensure your overpayment is accurately reflected and to avoid any potential issues.
What to do if you overpaid by mistake
Thankfully, there’s no penalty for overpayment, and a negative balance won’t ding your credit score. Still, if your overpayment was unintentional, you probably want to get that money back. You have two choices for making the overpayment go away:
Ask for a refund. You might request a direct deposit to your bank account or a check.
Spend down the credit. Continue to use the credit card until the surplus in your credit card account has been used up.
If you simply do nothing and the excess remains, your credit card issuer should attempt to send you a refund after six months.
Overpaying your credit card can be a strategic move to save on interest and manage your finances more effectively. Of course, not everyone can afford an accidental overpayment—the temporary perks likely aren’t worth being strapped for cash. Always stay on top of your autopayments, keep a close eye on your credit card balance, and consider using overpayments to your advantage.