Ever wonder if you should pay the statement balance on your credit card? When you get a credit card, it can be exciting. You can buy things without using your debit card, but you will need to pay up when you get your credit card statement.
And you may see two numbers: your statement balance and your current balance. Understanding and knowing both of them can help if you ever want to get a mortgage or another loan.
Keep reading to learn how you can use both balances.
What Is the Statement Balance on a Credit Card?
The statement balance shows how much you owe at the end of a billing cycle. Your credit card has monthly billing cycles where you can pay off all or part of what you owe.
You can refer to the statement balance later, and it will remain the same. However, your statement balance can change from month to month as you use your credit card and pay it off.
You need to pay your monthly balance in full to avoid accruing interest on the card. If you do have interest, you will need to pay that as well to get rid of it.
Now, your statement balance can include interest if you get a cash advance on the card. A cash advance is a short-term loan, and it will start building interest as soon as you get the money rather than the statement due date.
What Is the Current Balance?
Your current balance reflects every transaction on your card, including payments you make toward the balance. So it may not reflect your balance from a few months ago if you have paid all of that off.
But it will change whenever you use the card. If you start the day with a current balance of $50 and spend $20 at the grocery store, your new current balance will be $70. But if you haven’t paid off the last statement, it will also include that.
Knowing your current balance can help you understand how much more you can put on the card. Once you hit your card limit, you won’t be able to use the card until you pay off all or part of the balance.
You can also track your current balance throughout the month. That way, you won’t have as big of a surprise when you get your statement balance.
When to Use Each One
Understanding your credit card statement is important when looking at your financial situation. Even if you don’t use the credit card much, you should still track your spending.
Then, you can make sure you can pay off your credit card and avoid high interest rates. Knowing when to use each balance can also help you understand your entire credit card statement, and you can better track your spending.
Whether you have one or more credit cards, you should consider when to use the statement balance and when to use the current balance.
Paying Your Statement Balance on your Credit Card Bill
When paying your credit card bill at the end of the cycle, you should use your statement balance. While you can pay your current balance, it’s probably not the same as the one on your statement.
Using your statement balance can help you avoid overpaying and underpaying. Then, you can keep as much money in your account and keep from paying interest in the future.
Now, the exception to this is if you pay off your credit card bill more often. If you make payments every week, you can use your current balance to pay what you owe at that time.
Calculate Potential Interest Amounts
If you can’t always afford to pay off your credit cards in full, you can use your statement balance to calculate how much interest you will need to pay later. You can research interest rates for your cards and get an idea of your future balance.
This can be a great option for estimating payments a month ahead. However, some credit card companies use compound interest, which includes interest that builds on top of the initial interest.
While you can’t predict interest payments in the long-term, calculating them can help you get an idea of what you will owe. Then, you can budget accordingly.
If you have enough money, it can even encourage you to start paying off the card in full. That way, you can avoid interest entirely.
Know Your Credit Availability
Your credit availability can help you determine how much more you can spend on the card before you max it out. You should know the limit for each of your credit cards. If you reach that limit, you won’t be able to use it until you pay off the balance.
Knowing how much is available on your card can help you determine how and when to make purchases. If you have a big purchase, you can put it on a card with a higher limit.
Then, you can pay it off to open up more availability on the card. To figure out your credit availability, you should use your current balance. The current balance accounts for everything you owe on that card, and it’s more up to date than your statement balance.
Determine Your Credit Utilization Ratio
Along with credit availability, you should know your credit utilization ratio. Credit utilization is an important part of your credit and credit score. Ideally, you shouldn’t use more than 30 percent of your credit limit.
If your credit limit is $1,000, you shouldn’t spend more than $300 without paying it off. While you can utilize as much of your credit as you want, using more can make you look riskier to lenders if you ever want to buy a home.
As you get used to using a credit card, use your current balance to determine your ratio. If you’ve used a lot of it, you can switch to paying for things with your debit card until you can pay off your credit card statement balance.
Understanding Your Credit Card Statement
When you get your credit card statement, you may see two balances. Your statement balance tells you how much you owe on that credit card bill. However, your current balance can tell you a lot about your spending.
Consider how you can use each to your advantage when making financial decisions. Then, you can set yourself up for a successful financial future.
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