As you get familiar with your credit cards, you’ll notice that each issuer may have a slightly different method of presenting and even calculating the numbers that are presented to you on both your monthly statement and your online portal. Still, you will likely see one number called the statement balance and one called the current balance.
First, what does statement balance mean? The statement balance includes all transactions during a designated billing period, called a billing cycle.
For example, if a billing cycle covers one month and starts on the 15th of each month, this statement balance may include all of the activity on an account between, say, Jan. 15 and Feb. 15, in addition to any previously unpaid balances. Then, the next billing cycle would begin on Feb. 15 and end on March 15.
At the close of each billing cycle, the statement balance will reflect one figure: the total balance on the card at the close of that cycle. Until the close of the next billing cycle, this number, the statement balance, will remain unchanged.
But that doesn’t mean that your credit card’s current balance won’t change. Your current balance reflects the current total of all transactions that occur on your account. Did you swipe your credit card for some Chinese take-out three days ago? That purchase is added to your current balance.
Return a shirt that didn’t fit right yesterday? Your current balance will reflect that refund. You can think of the current balance as a running total of all transactions that occur on an account.
To understand the interplay between the statement balance and the current balance, take a look at the example from above. On Feb. 15, the statement balance reflects $1,000, meaning that the total charges between Jan. 15 and Feb. 15 add up to $1,000.
Two days later, say you make a $50 charge to the card. Hypothetically, your current balance would reflect $1,050 while the statement balance would remain the same. In this case, the current balance is higher than the statement balance.
The reverse can also be true, and the current balance could potentially reflect a smaller number than the statement balance. Using this example, say you received a refund on your card several days after your billing cycle closed. The current balance would reflect a number that is lower than the statement balance.
What to Know About Paying Off Your Credit Card
As each billing cycle closes, you will be provided with a statement balance. You will also likely be provided with a due date. At the time you make a payment, you may decide to pay off the statement balance, the current balance, the minimum payment, or some other amount of your choosing.
If you regularly pay your statement balance in full, before or by its due date, you may not be subject to any interest charges. Most credit card companies only charge interest on any amount of the statement balance that is not paid off in full.
The period in between your statement date and the due date is called the grace period. During this period, you may not accumulate interest on any balances.
It’s worth mentioning that not every credit card has a grace period, and it is possible to lose a grace period by missing or making late payments. If you have any questions about whether your card has a grace period, you may want to contact your credit card company.
If you’re using your credit card regularly, it is possible that you will use your card during the grace period. This would increase your current balance. At the time in which you make your payment, you will likely have the option to pay the full current balance.
If you have a grace period, paying the current balance is often not necessary in order to avoid interest payments. This is generally true if you are consistently paying your statement balance each month. But paying your current balance in full by the due date could have other benefits. For example, it is possible that this move could improve your credit utilization ratio, which is factored into credit scores.
Next, you could pay just the minimum monthly payment. Generally, this is the lowest possible amount that you can pay each month while remaining in good standing with your credit card company. It also can be the most expensive.
Typically, the minimum payment will be an amount that covers the interest accrued during the billing cycle and some of the principal balance.
Making only the minimum payments may be a slow and expensive way to pay down credit card debt (especially because you can continue to make charges to a card that exceed the minimum payment, ultimately growing the balance.)
To understand how much you’re paying in interest, you can use a credit card interest calculator. Although minimum monthly payments are not a fast way to get rid of credit card debt, making them is important. Otherwise, you probably risk being dinged with late fees. Also, missing or making a payment late can have a negative impact on your credit score. So, if the minimum payment is all you can swing right now, it’s OK. But you may want to consider avoiding additional charges on your card.
Your last option is to make payments that are larger than the minimum monthly payment but are not equal to the statement balance or the current balance. That’s OK, too. You’ll still potentially be charged interest on remaining balances, but you’re likely getting closer to paying them off. You can keep working on getting those balances lowered. A good goal is to get to a place where you are paying off your balance in full each month.
Your Credit Utilization Ratio
The balance you currently carry on your credit card could impact your credit utilization ratio. Credit utilization measures how much of your available credit you’re using at any given time.
Credit utilization is one of a handful of measures that are ultimately used to determine your credit score—and it has a big impact. Credit utilization can make up 30% of your overall score, according to MyFICO.
Not every credit card will report account balances to the consumer credit bureaus in the same way or on the same day. Also, the reported number is not necessarily the statement balance. It very well could be the current balance on your card, pulled at some time throughout or after the billing cycle.
Again, it may be worth checking with your credit card issuer to find out more. If your issuer reports current balances instead of statement balances, asking them which day of the month they report on could be helpful.
Sometimes, the lower your credit card utilization, the better your credit score may be. While you may feel in more control to know which day of the month that your credit balance is reported to the credit bureaus, it may be an even better move for your general financial health to practice maintaining a low credit utilization all or most of the time.
If you are worried about your credit utilization rate being too high during any point throughout the month, you could make an additional payment. You don’t have to wait until your billing cycle due date to reduce the current balance on your card.
According to Experian, one of the credit reporting agencies, keeping your current balance below 30% of your total credit limit is ideal. For example, if you have two credit cards, each with a $5,000 limit, you have a total credit limit of $10,000. To keep your utilization below 30%, you’ll want to maintain a balance of less than $3,000.
3 Tips for Managing Credit Card Balance
If you’re struggling to juggle multiple credit cards and make all of your payments, here are some tips that may help.
1. Organizing Your Debt
A great first step to getting a handle on your debt is to organize it. Getting to know it intimately can also help. Consider listing out each source of debt, along with the monthly payments, interest rates, and due dates. It may be helpful to keep this list readily available and updated.
Another option is to use software that aggregates all of your finances, such as your credit card balances and payments, bank balances and other monthly bills. Whether you use existing software or your own calendar system, keep in mind that staying on top of your due dates and making all of your minimum payments on time is one of the best ways to stay on track.
Bonus tip: Consider asking your credit card providers to change your due dates so that they’re all due on the same day. You can pick something easy to remember, such as the first of the month.
2. Making All Minimum Payments, But Picking One Card to Focus On
While you’re making at least the minimum payments on all your cards, you might want to pick one — that you haven’t paid off — to focus on first. There are two versions of this debt repayment plan, known as the debt avalanche and the debt snowball, respectively.
With the debt avalanche method, you’d attack the card with the highest interest rate first. With the debt snowball method, you’d go after the card with the lowest balance. The former strategy likely makes the most sense from a mathematical standpoint, but the latter may give you a psychological boost.
If and when possible, you may want to apply extra payments to the card’s balance that you’re hoping to eliminate. Once you’ve eliminated one card, you could move to the next. You’re trying to get your balances to a place where you’re paying them off in full each month.
3. Cutting up Your Cards
Whether you do this literally or proverbially, as you get better at managing credit card debt, putting a moratorium on your credit card spending may be a great strategy.
If you are consistently running a balance that you cannot pay off in full, you may want to consider ways to avoid adding on more debt, like literally cutting up your cards.
Taking Out a Personal Loan
If you’re accumulating credit card debt and feel like there’s no end in sight, it may be time to look at other options to help crush your debt.
One option is to take out a personal loan to pay off your credit card debt. By taking out a personal loan, you would consolidate all of your credit card debt. Doing so would mean you would only have to make one monthly payment moving forward instead of having to keep up with paying off multiple credit cards.
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