What happens if I pay more than my current balance?

Overpaying Your Credit Card: Understanding Negative Balances

When you make a payment that exceeds your current credit card balance, you create a negative balance. This means that you now have a credit with the credit card issuer.

What Happens to the Negative Balance?

The negative balance will remain on your account until you incur new charges. Once you start using your card again, the negative balance will automatically be applied towards your purchases, converting it back to a positive balance.

How to Handle a Negative Balance

1. Prioritize Current Statement Balance:

Unless you are instructed otherwise, it is best to prioritize paying the most recent statement balance first. This ensures that you avoid any late payment fees or interest charges on that balance.

2. Manage New Purchases:

Be aware that any new purchases made will be deducted from your negative balance. This means that it is important to manage your spending carefully to avoid going back into a positive balance and incurring interest charges.

3. Monitor Your Account:

Keep an eye on your account balance to ensure that your negative balance is applied correctly. If you notice any discrepancies, contact your credit card issuer immediately.

Benefits of Overpaying

Overpaying your credit card can have several benefits:

• Avoid Interest Charges: By maintaining a negative balance, you can effectively avoid interest charges on your purchases.
• Improve Credit Score: A negative balance can slightly improve your credit score by reducing your credit utilization ratio.
• Convenience: Having a negative balance gives you a financial cushion in case of unexpected expenses.

Important Note:

It is important to note that overpaying your credit card is not the same as making a prepayment. A prepayment is a scheduled payment made before your statement due date, which reduces the outstanding balance on your account. Overpaying, on the other hand, creates a negative balance that is applied towards future purchases.