When you buy with credit, it’s easy to forget that you’re paying for that item with money that doesn’t belong to you. It’s like taking out a short-term loan to make a purchase. If you’re putting charges on your credit card throughout the month, the value of that loan — your “current balance” — fluctuates.
You may notice there are other numbers on your credit card statement, such as your statement balance. Wait a minute, you may ask, What’s the difference? Here we’ll discuss the meaning of statement balance and current balance, along with a few tips for paying down your credit cards.
Statement Balance vs Current Balance
Each credit card issuer may have a slightly different method of presenting and even calculating the numbers on your monthly statement and online portal. Still, you will likely see one number called the statement balance and another called the current balance.
The statement balance means all transactions during a designated period, called a billing cycle. If a billing cycle covers one month and starts on the 15th of each month, this statement balance will include all of the activity on an account between, say, January 15 and February 15, in addition to any previously unpaid balances. Until the close of the next billing cycle, the statement balance will remain unchanged.
Your current balance means the running total of all transactions on your account. It changes every time you swipe your card to pick up Chinese takeout or return a T-shirt that didn’t fit right.
To understand the interplay between the statement balance vs. the current balance, consider this. On February 15, the statement balance is $1,000, meaning that the total charges between January 15 and February 15 add up to $1,000. Two days later, you make a $50 charge to the card. Your current balance will reflect $1,050 while the statement balance remains the same.
In this case, the current balance is higher than the statement balance. The reverse can also be true, and the current balance can potentially reflect a smaller number than the statement balance.
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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.
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Paying the Statement Balance
If you regularly pay your statement balance in full, by its due date, you likely won’t be subject to any interest charges. Most credit card companies charge interest only on any amount of the statement balance that is not paid off in full.
The period 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. It’s also possible to lose a grace period by missing payments or making them late. If you have any questions about whether your card has a grace period, contact your credit card company.
Paying the Current Balance
If you’re using your credit card regularly, it is possible that you will use your card during the grace period. This will increase your current balance. At the time 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 not necessary in order to avoid interest payments. But paying your current balance in full by the due date can have other benefits. For example, this move could improve your credit utilization ratio, which is factored into credit scores.
Paying the Minimum Monthly Payment
Next, you can 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 is also 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 is a slow and expensive way to pay down credit card debt. 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 risk being dinged with late fees.
Missing or making a payment late can also have a negative impact on your credit score.
So, if the minimum payment is all you can swing right now, it’s okay. Just avoid additional charges on your card.
Making a Payment of Your Choice
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 okay, too. You’ll potentially be charged interest on remaining balances, but you’re likely getting closer to paying them off. Keep working on getting those balances lowered. A good goal is to pay off your balance in full each month.
Your Credit Utilization Ratio
The balance you currently carry on your credit card can 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 used to determine your credit score — and it has a big impact. Credit utilization can make up 30% of your overall score, according to FICO® Score.
Not every credit card reports 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 could be the current balance on your card, pulled at any time throughout 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 is, the better your credit score. 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 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 can 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.
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3 Tips for Managing Your 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. Try listing 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. Check out SoFi Relay if you haven’t already.
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.
You can also ask your credit card providers to change your due dates so that they’re all due on the same day. 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, pick one to focus on first. There are two versions of this debt repayment plan: the Debt Avalanche and the Debt Snowball.
With the Avalanche method, you attack the card with the highest interest rate first. With the Snowball method, you go after the card with the lowest balance. The former strategy makes the most sense from a mathematical standpoint, but the latter may give you a better psychological boost.
If and when you can, apply extra payments to the card’s balance that you’re hoping to eliminate. Once you’ve paid off one card, you can move to the next. Ultimately, you’re trying to get to a place where you’re paying off your balance in full each month.
3. Cutting up Your Cards
Whether you do this literally or not, a moratorium on your credit card spending can 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.
A word of warning: Don’t be tempted to cancel all your cards. This can negatively affect your credit score. However, if you feel you really have too many credit cards to manage — say, more than three or four — cancel the newest credit card first. This will ensure your credit history length is unaffected.
The Takeaway
Your credit card statement balance is the sum of all your charges and refunds during a billing cycle (usually a month), plus any previous remaining balance. It changes monthly with each statement. Your current balance is updated almost immediately every time you make a purchase. It is the sum of all charges to date during a billing cycle, any previous remaining balance, and any charges during the grace period. Whenever you can, pay off the full statement balance to avoid interest charges.
Trying to pay off credit card debt? Taking out a personal loan can consolidate all of your credit card balances. You’ll have only one monthly payment to make, a low interest rate, and no fee options. Plus, there is an easy online application and access to live customer support seven days a week.
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