You’ve just financed a $2000 purchase with your credit card. Your bill comes telling you what your minimum payment is for the month (or other statement period). Should you make that minimum payment or should you pay off more of the balance? How do you figure out what to really pay each month?

The answer to that question is pretty simple on the surface: pay as much as possible! Or better yet, pay off the balance in full every month, and don’t use credit cards to finance things you couldn’t afford to buy outright with cash. There. Question answered. Problem solved.

Or is it?

Unfortunately, while the above advice would save most consumers the most money, there are always exceptions to the rule. You might be one of them.

When You Shouldn’t Pay as Much as Possible on Your Credit Card Balance

Not being hit with interest sounds attractive. But what if paying off your credit card bill in full this month would actually cost you money? Would you still consider that to be the best idea? Probably not. Let’s look at an example.

Rather than making a new purchase, you recently transferred a credit card balance of $2000 to a new card offering a low 2.9% APR on balance transfers for the first year (like the Citibank Gold credit card). You can’t afford to pay it off in full. If you could, you would have paid off the previous card instead of transferring the balance. However, you do have $1000 available up front, and you would have enough additional money each month moving forward to easily cover the minimum monthly payments, and then some. You’re also a regular investor who could realistically expect to earn a 10% return in a year if you were to invest that $1000 instead.

You figure you have two basic options: invest that $1000 and pay off the $2000 over time, or put the $1000 towards your credit card balance and don’t invest at all.

In this case, the smarter option would be to pay off the card balance slowly and invest that $1000. Even if you didn’t pay off any of the credit card balance over the course of a year — which you will — you would only pay 2.9% in interest on that $2000 (which is the equivalent of losing 5.8% of your $1000). By investing your $1000, you’ll earn a “profit” of 4.2% over the year. After the year is up, you could even put that initial $1000 towards whatever’s left on your credit card balance, keeping the additional money you made. You would come out ahead.

Situations like these aren’t for everyone though. You would still want to be able to pay enough each month that your $1000 would pay off the rest of the balance at the end of the year before your balance transfer interest rate reverts to the card’s higher purchase rate or cash advance rate. Also keep in mind that if there’s a lot of risk to the investment, you might not come out ahead at all, meaning a safer bet would still be to pay off the credit card balance to eliminate some of your debt instead. The “right” choice of how much to pay on your credit card balance each month varies from person to person. But no matter what situation you might be in investment-wise, still try to always pay off more than your minimum payment due each month with whatever other cash reserves you might have. That’s the best way to avoid being saddled with higher interest credit card debt down the road, especially if your financial situation changes.

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