Is Paying Off My Credit Cards Every Month Going to Make Me Rich?

Credit cards offer a convenient way to make purchases in person and online. But it's essential to stay on top of your payments. When you use credit cards, you're borrowing money from your credit card company, and you'll need to pay them back. You may wonder if paying off your credit cards every month will make you rich. Will it?

You won't get rich by paying your entire credit card balance

Here's the bad news: Paying off your credit cards every month won't make you rich. But paying your balance off is an excellent strategy to follow. By doing this every month, you put yourself in a better situation to focus on other personal finance goals. Those who don't pay their entire balance off may feel extra stress, and carrying credit card debt gets expensive.

Four good reasons to pay off your credit cards

Here are a few good reasons to get into the habit of paying off your credit cards every month, even though it won't make you rich.

1. Avoid interest charges

Credit card interest rates are high, so this extra expense can quickly get out of control if you're not careful. Paying off your entire credit card balance is best if you don't want to pay additional fees. When you pay your total balance, you'll only be responsible for paying back the money you charged, and you can steer clear of credit card interest charges.

2. You can reduce your credit utilization ratio

Your credit utilization, or how much available credit you use, makes up 30% of your credit score. Experts recommend using less than 30% of your available credit, so paying off your monthly balance can help you maintain a lower credit utilization ratio. When you continue to carry a balance on your card, it impacts how much available credit you use, and a higher credit utilization ratio can harm your credit score.

3. There's less risk of maxing out your card

When you're approved for a credit card, your credit card issuer will set a credit limit. This is the total amount of money you can charge to your account. If you have a lower credit limit, you want to be especially careful to avoid maxing out your card -- because there are consequences.

When this happens, additional transactions beyond your limit will be declined. Your credit score may also suffer because your credit utilization ratio will be high. Paying off your entire credit card balance monthly can lessen the risk of maxing out your credit card.

4. Stay out of credit card debt and build wealth

Finally, paying off your credit cards every month can allow you to stay out of credit card debt. Credit card debt is a significant financial hardship for many Americans. Since interest continues to accrue on your unpaid balance, it can be challenging to pay off your debt quickly.

Avoiding credit card debt is a smart way to set yourself up for better financial success. Without this debt hanging over your finances, you'll be more able to focus on other financial goals, like increasing your IRA account contributions. With little to no debt, it'll be easier to focus on building your wealth, which means you could make other financial decisions that allow you to get rich.

Avoid carrying a balance on your credit cards

If at all possible, it's best to avoid carrying a balance on your credit cards. You won't automatically get rich or build wealth from paying off your debts in full every month, but you can avoid debt and have more freedom to focus on other financial goals that are important to you.