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It’s Time To Understand Your Credit Cards

Your credit card bill comes in the mail every month like clockwork. You give it a quick glance, check the amount of money owed and the date it’s due, then chuck the bill on the kitchen counter and make a mental note to pay it on time. You think you’re on top of it (late fees? never…), but credit card terminology can be tricky, and not fully understanding the how and when of payments can cost you. Here are a few terms to help make sense of your monthly statement…

Photo: Rogers

Current Balance Versus Statement Balance

If you call the credit card customer service desk or look up your balance online to see how much you owe, the number you’re given or that you see in your account is the current balance. This number indicates the amount of money you owe at that time, including all transactions that have been posted to your account.

Your statement balance is the total amount of loaned money for any purchases on your card as of the last day of your statement. In other words, if your statement period finishes on the fifteenth of the month, your statement balance will include all charges made from the first day of your statement up until the close of business on the last day.

For example, when a statement period closes on the fifteen of the month, the statement balance will include all charges made up until that day; however, if you call for a balance midday on the 17th of the month, you’ll be given the amount of the current balance that includes charges from the statement balance and charges that were made on the 16th. Because this amount is comprised of both current and statement balances, the figure might be slightly higher than the amount listed on the statement balance alone.

Photo: Government Accountability Office

Incurring Interest

Cardholders are required to pay interest based on their statement balance. The monthly minimum payment requirement incurred within a single statement period takes into account interest, fees, and penalties for late or nonpayments. Your monthly statement provides detailed information about your payment, as well as the statement period dates and the specific dates and amounts of each charge you made.

Photo: Nayak

Avoiding Interest Charges

Interest on the amounts you charge on your credit card can add up fast. If you’re looking to avoid paying any interest, keep an eye on your statement balance instead of your current balance. Pay your statement balance off in full, either by the statement date or within a grace period, and you won’t owe any interest at all. If you decide to pay only a portion of the balance owed, you’ll be charged interest on the amount that remains unpaid.