Which of the following is a benefit of paying the full balance of your credit card each month?

• A. Avoiding interest charges on purchases
• B. Decreasing your credit score
• C. Being charged late payment fees
• D. Increasing your outstanding debt

Answer: (A)

Verified step by step guidance

1. Understand the concept of credit card balances: When you use a credit card, you are borrowing money from the credit card issuer to make purchases. At the end of the billing cycle, you receive a statement showing the total amount owed, known as the balance.
2. Learn about interest charges: If you do not pay the full balance by the due date, the credit card issuer will charge interest on the remaining balance. This interest is typically calculated based on the annual percentage rate (APR) and can accumulate over time, increasing your debt.
3. Recognize the benefit of paying the full balance: Paying the full balance by the due date ensures that you avoid interest charges on purchases. This is a key financial strategy to minimize costs and manage debt effectively.
4. Understand the impact on credit score: Paying your credit card balance in full and on time can positively impact your credit score. It demonstrates responsible credit usage and timely payments, which are important factors in credit scoring models.
5. Avoid other negative consequences: Paying the full balance also helps you avoid late payment fees and prevents your outstanding debt from increasing unnecessarily, which could otherwise lead to financial strain.