Is overpaying your credit card bill a good idea?

By Marianne Curphey

When you pay your credit card bill, it's possible to pay more than required. For instance, you may want to add a hundred pounds to your regular payment, or perhaps you want to give a little of each paycheque to your credit card bill as you work on tackling debt. Or perhaps you mistakenly pay more than your full balance.

Whether you do it on purpose or by accident, make sure you know how the overpayment will work, or you could find yourself in trouble.

Paying more than the minimum
If you're carrying a balance and paying the minimum on it, you may be tempted to pay more than the minimum, but not the whole balance, to work on paying off the debt faster. That should be as easy as sending your preferred form of payment with as much as you want to pay, or sending an additional payment later in the month.rights-if-you-overpay

If you want to set it up to come out of your account automatically, so
there's no need to remember to pay on time (and no backing out of the
extra payment), you can do that as well.

Thanks to a 2009 change under the Lending Code, a guide to standards
and practices for financial services in the UK, you should be able to repay any amount you want, as long as it's the minimum or more. Before the change, you could only set up an automated payment for the full balance
or the minimum amount.

You can also make the next month's payment early -- say, if you get a holiday bonus or other windfall that you want to apply to your debt before you are tempted to spend it elsewhere.

"You have the flexibility to overpay on your mortgage, so why not on your credit card?" says Michael MacMahon, author of Back to the Black, a
book on becoming debt-free. Go ahead and make another payment for a
few hundred pounds, MacMahon says, but be sure you time it correctly.

"If you make an initial payment, and then an early second payment, it might still count toward payment for a single month," says Andrew Hagger, founder and director of MoneyComms, a money information service.

You may need to call your issuer or check your online account to see when you are able to make the next month's payment. Otherwise, you could make the extra payment, the bank will apply it to the current month, and next month when you think you're in the clear, you'll be hit with a late payment fee and possibly a ding to your credit score.

Paying more than the balance owed
If you accidentally overpay the entire balance, your first step is to call your credit card company and explain. You'll likely just use the card as normal, but without further payment, until you've spent however much you overpaid, says a UK Cards Association spokesman.

However, don't assume that is the case. Some cardholder agreements clearly prohibit this, such as HSBC, which says, "You should not make payments that place the Account in credit. If you do, we may still restrict the use of the Card and the Account to the amount of your credit limit."

There is no real benefit to overpaying your card bill. It's not the best place to keep money, as you won't gain any interest on it, says James Jones, head of consumer affairs at Experian. And it won't increase your credit line. Your credit limit is based on your repayment history and overall credit score, not how much cash you can load up on your card.

What's more, if you do it too often, you could be questioned for illegal practices.

"Credit card companies are wary of people who want to load their cards with credit because there could be a potential money laundering situation," says Hagger. For instance, it would theoretically be possible to put money from abroad or from criminal sources onto your card, then spend it legitimately via your credit card. So overpaying too often could put you on issuers' radars.

If you want to take your overpayment back, you can, and the money will be available to you immediately, but you may be hit with a cash advance fee, Hagger says. The fee could be as much as 3% of the amount withdrawn. What's more, overpaying your credit card bill and then withdrawing it could make your card provider wary that you have poor money management skills. Unless you need the money for other bills and necessities, it may be best to let the money stay there. Get rid of the excess by using your credit card, and be careful not to overpay again.

See related: 7 small mistakes that can break your score, Prioritising debt: Which bills are essential?

Updated: 12 April 2017