Is it better to pay off my credit card debts in instalments or a lump sum?

Published Mon, Oct 15, 2012 Updated Tue, Feb 16, 2021

From a financial point of view paying off as much debt as you can as quickly as you can is the best way to save money, so you should generally pay off lump sums if you can in order to keep your interest costs down.

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However, sometimes you might be more interested in developing a good credit file rather than keeping your costs down, after all a little bit more interest now could save you a lot if you get a better credit score.

As a rule adding any new (positive) information to your credit file will boost your credit score (or at least improve your file) and as such paying off little bits of your debt consistently is a great way to improve your score.

The other part of the puzzle though is your credit capacity. Generally if you have a lot of debt a bank will be less likely to lend to you than if you have little or no debt (all other things being equal). So if you want to take out new debt then paying off previous loans will be helpful over and above the credit score benefits.

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Summary

In reality it doesn’t make a huge difference what you do. Making payments on time will help your score and paying off debts in full will help too (regardless whether you do it in full or instalments).

In general there is no real point in lump sum payments unless you are fully repaying the debt, since that will free up your credit capacity for when you apply for a new loan. Of course paying a lump sum against part of a debt will save you money anyway, so there’s little reason not to do so if you have the money to spare.