Many people have the bad habit of not reading their credit card statements. For those who do read, how many really understand what it all means? It is because of this that many people found themselves in credit card debts that have already escalated beyond their control. Don’t be one of these people. Understanding your credit card statement is crucial to your journey towards financial freedom. Use credit cards to your advantage. Learn how credit cards work.
To truly understand how a credit card can be good for you, you need to first be able to read and decipher your credit card statement. The small pieces of information in your credit card bill are all equally important. They can aid you with proper use of your credit card.
If learning about all those terms in your credit card statement all at once is too much for you to handle, at least start with the four most important ones:
1. Statement Date
This is the date that your billing statement is prepared. The date is important simply because it is the cut-off date. All transactions made after the previous month’s statement date to the date indicated are included in the statement.
TIP: If you think you have already reached the limit of your monthly expense budget, wait until after the statement date to make your purchase. In this way, you will have more than a month of grace period before you need to pay for that particular purchase. For example; if your statement is generated every 5th of the month, items that you bought before the 5th will be billed this month. Purchases after the statement date are for next month.
2. Payment Due Date
The payment due date is the last day for you to make your monthly payments. As long as you have a balance in your credit card, you are obliged to pay every month on or before this date. Although some credit card companies accept payments on the next banking day after a weekend or a holiday; some no longer do so because of the presence of automated online payments or phone banking.
Take note however that the payment due date varies. Rather than a specific date of each month, it is normally set at 21 days after the statement date.
TIP: Make sure to pay on time so as to avoid penalties and late charges. You can opt to pay early but make sure you do it after the statement date otherwise, that payment would be counted on the previous month’s billing cycle. Also, always take note of the due date because it varies every month.
3. Total Amount Due
This pertains to the total amount that you have used in your credit card that you are liable to pay the card issuer. It is your outstanding balance.
TIP: Although you are not required to pay the full amount on the payment due date; it is in your best interest that you do so. Any outstanding balance will begin to incur high interest charges.
4. Minimum Amount Due
The minimum amount due is the lowest amount that you are required to pay on or before the payment due date. It is typically a small percentage of your outstanding balance. This is directly proportional to your total amount due. The higher your outstanding balance, the higher your minimum amount due and vice versa.
TIP: Never miss paying your minimum amount due on or before the payment due date. You will not only be subjected to late charges, it will also affect your credit rating. Missed payments will affect your standing with credit institutions and might ultimately affect your capability in acquiring loans in the future. In addition, even if you pay the minimum amount, if you continue to make purchases each month, your balance will continue to grow. This is the fastest way to put yourself in heavy debt. Thus, a word of warning; if you don’t want the power of compound interest working against you, then, refrain from paying just the minimum amount due each month.
First of three parts, click here for Part 2.
First Published in Pinoy Smart Living on 21.05.2019