Do you know the difference between a statement balance vs. current balance? If you don’t, no worries! CreditNinja has your back with everything you need to know about account balances and how they work on your credit card!
Statement Balance vs. Current Balance Defined
What is the difference between your statement balance and your current balance? While you will find both of these balances on your monthly credit card statement, they represent two different amounts.
Your statement balance shows the amount of money charged during a particular billing cycle. Your current balance reflects the amount of money you owe on your credit card overall, which includes statement balances from previous billing cycles that you haven’t paid off yet.
Let’s look at an example. Say you have a credit card with a total credit limit of $2,000. Then, let’s say your total balance was $0 in January, and you charged $300 in February and $500 in March. When you receive your credit card statement for the month of March, you will see that your statement balance is $500, and your current balance is $800 (since it includes the previous statement balance from February). You spent $500 for the particular billing cycle of March but $800 overall.
Current Balance vs. Available Balance
There is also a difference between the current balance and the available balance on your credit card. As discussed, your current balance is your cumulative balance that reflects the amount of money you to owe your credit card issuer overall. Your available balance, however, reflects the amount of money you have available to spend on your credit card.
Looking at the previous example above, if you had a credit card with a limit of $2,000 and a current balance of $800, that would leave you with an available balance of $1,200. After deducting the $800 balance from the $2,000 credit limit, you would be left with $1,200 available until the next billing cycle.
How To Find Your Statement Balance and Current Balance
Each month, credit card account holders receive a billing statement from their credit card issuer. This credit card statement will contain information such as:
- All current balances.
- The previous balance from the last billing cycle.
- Your entire statement balance.
Each balance will be clearly labeled, so you can easily identify how much money you owe overall vs. how much money you owe for that one billing cycle. If you receive your credit card statement and are unclear about which balance is which, you can always contact your issuer and have an agent identify everything with you over the phone or in person.
Why Is My Statement Balance Higher Than My Current Balance?
Since your statement balance and your current balance are two separate balances, you may often find that they are different amounts. Typically, your statement balance will be higher than your current balance. This is because your current balance includes any unpaid balances from past billing cycles, as well as interest charges. The higher your current balance, the faster you will accrue interest.
How Does a Credit Card Bill Work?
You can typically access your credit card bills and statements online, but you may also opt to receive paper statements and bills in the mail. However, you may find that it is much easier to handle your credit card account online. By connecting your credit card account to your bank or checking account, you can make payments and pay off your balances with the push of a few buttons on your smartphone or computer.
Paying a Credit Card Bill
Whether you opt to receive your credit card bill online or in the mail, it’s essential to make a payment every month. The only exception to this is if you have a current balance of $0.
How does making payments on a credit card work? Your current balance is broken down each billing cycle to help determine your minimum amount due. Your minimum amount due is the amount of money you owe your credit card issuer that month. Typically, the higher your current statement, the higher your minimum amount due will be. For example, if you have a current balance of $100, you may find that your minimum payment due is only $25. But, if your balance gets higher, say $1,500 or more, your minimum payment due may be between $50 and $100.
Paying Off Your Current and Statement Balance
Remember that you are allowed to pay more than your minimum amount due each month. In fact, most financial institutions encourage borrowers to pay as much as possible towards their monthly credit card balances. If possible, it’s best not to carry a balance at all. If you pay off credit card purchases right after making them, the charge may never appear on your credit card balance! You can avoid being charged interest by paying off your credit card purchases immediately or before the next billing cycle.
You may also pay off your credit card balance during a billing cycle to bump the available credit back up. For example, say your credit limit is $2,000, and you spent $400 but paid it back the next day. As soon as you paid that $400, your credit limit would bump back to $2,000.
Do Credit Bureaus Care About My Statement Balance vs. Current Balance?
It’s important to note that your statement and current balance can affect your credit score. Credit bureaus care about the total amount of debt you owe, which includes credit card balances.
Your balances and total debts work towards determining your credit utilization ratio, or credit utilization rate. You can calculate your utilization ratio by comparing your total debts to how much money you bring in regularly. Typically, credit bureaus like to see consumers having a low credit utilization rate, usually around 30%.
What To Do When Your Credit Card Balance Is Out of Control
What do you do when your current balance is out of control? Before digging yourself into too much credit card debt, try these helpful tips to get your finances back on track.
Try a No-spend Challenge
Try a no-spend challenge while you work towards paying off your credit card balance. First, calculate your required expenses like gas, groceries, rent/mortgage, etc. Then, try starting off small and going a few days or weeks without spending money on anything outside of those required expenses. You may find that a few weeks or months of no spending is enough to help you catch up on your balances!
Hide Your Credit Card
If you are having trouble resisting the urge to use your credit card, try keeping it out of your wallet or purse for a while. Hide your credit card in a secure place like a safe, and only reach for it in dire financial emergencies. You may find that keeping your credit card out of reach is enough to deter you from using it unnecessarily.
When Should You Cancel a Credit Card?
You want to avoid canceling a credit card unless it is absolutely necessary. The credit limits you have on credit cards work in your favor when it comes to your credit utilization. If you cancel a card, you may reduce the amount of credit attributed to your credit profile by hundreds or thousands of dollars. By canceling a credit card, you may inadvertently raise your credit utilization ratio, which could end up negatively affecting your credit score.
However, sometimes canceling your card is what’s best for your bank account and personal financial situation. Here are some signs it may be time to cancel a credit card.
If You Can’t Stop Spending
If you cannot resist the urge to spend impulsively, it may be time to close your credit card account. Excessive spending can lead to massive amounts of debt and potential late or missed payments. If habits like that persist, you may find yourself in a loan default that could take multiple years to clear off your credit report.
If You Cannot Afford the Fees
Many credit cards come with annual fees and other charges. If you cannot afford these payments and your credit card issuer won’t budge when it comes to reducing them, it may be the right choice to cancel the credit card account altogether.
Credit Card Issuer vs. Direct Lender: Which One Is Better?
You may be trying to decide if it would be best to go with a credit card company or a direct lender when you need funding. Depending on your financial needs and situation, you may find that one type of financial institution works better for you than the other.
Credit card issuers connect borrowers to revolving lines of credit. That means borrowers have a predetermined credit limit they can spend from as they please throughout their billing cycle. Once the billing cycle ends, borrowers are only charged interest on the money they actually used, not their entire credit limit. Once the new billing cycle begins, borrowers have access to a renewed credit limit which they can then continuously spend from and pay off for as long as their account is open.
Direct lenders distribute loans in one set lump sum and charge interest on the entire loan amount. Borrowers then pay off their loan in fixed payments and must apply for a new loan if they ever want additional funding. If you are looking to cover one large expense, a direct lender may be the right choice for you.
Before you commit to a direct lender, doing some research is a good idea. You may find that loans like fast payday loans online come with low loan amounts and high rates, while other types of funding, like a convenient personal installment loan, can come with higher loan amounts and more competitive interest rates.