Credit card statements are notoriously difficult to understand. However, there are several important reasons why you should ensure that you understand everything on your credit card statement. Scanning each statement, for example, will assist you in detecting any unauthorised charges or errors. Furthermore, your credit card statement contains information that can help you plan your financial future by tracking how much interest you’re paying and how to pay off your credit card debt as quickly as possible.
Method 1 Recognizing the Importance of Your Statement
1. Consider the format of a credit card statement. Simply put, your credit card statement is a summary of what you’ve done with your card during a given billing period. Any transactions or changes to your account will be reflected. It should be noted that the specific days of the billing period are always included. For example, any purchases or other transactions made after the last day of the billing period will appear on the credit card statement that follows.
2. Maintain a record of your total credit card balance. To put it another way, your credit card statement will assist you in keeping track of your debt. Because they all affect your total credit card balance, all of the terms, numbers, and percentages on your bill are listed. You’ll most likely have a new balance with each credit card statement. This is true even if you did not use your card, because interest is being accrued on the money you already owe the credit card company.
3. Keep track of your available credit. The amount of money you can charge to the card without incurring penalties is referred to as your “available credit.” This is a direct reflection of your total credit balance. Subtracting the amount you already owe from your credit limit yields your available credit.
4. Recognize how interest works. You make payments to your credit card company in exchange for the ability to borrow and spend money. The interest rate, also known as the annual percentage rate, determines how much you pay. In simple terms, you repay the amount borrowed plus a percentage (your interest rate) of the amount borrowed for each year the debt is carried.
Each month you maintain a positive credit balance, or each month you owe the credit card company, interest is added.
For example, if you borrow $100 at a 20% annual interest rate, you’ll end up owing the credit card company $120. This includes a repayment of the borrowed amount as well as the cost of borrowing. The interest rate you agree to when you open your account determines this cost. This is an oversimplified scenario in which you repay the entire amount in one year and make on-time monthly payments.
Method 2 Understanding Each Section of Your Statement
1. Find the account activity summary. This section of your statement will include totals for all charges, fees, and other transactions made during the billing period in question. You’ll see totals for payments made to the credit card company, credits received by your account, and purchases made with the card here. You’ll also see totals for balance transfers and cash advances to and from the account.
This section, as the name suggests, is a summary of the rest of the information in the statement. There are separate sections for each specific event that occurred in your account, such as each purchase (or type of purchase) you made.
2. Examine your payment information carefully. Your payment information includes the total amount owed (your balance), the minimum payment, and the payment due date. The minimum payment indicates the smallest amount of money that must be paid by the payment due date.
There will also be a “late payment warning.” You’ll find information here about the additional fees and interest rate changes that may apply if you miss a payment deadline.
3. Keep track of any changes in your interest rate. Changes in your interest rate are critical because they affect the amount of interest you pay on the money you borrow with your card. If you pay your bill after the due date or spend more than your credit limit, you will be charged a penalty.
Your credit card company may also simply change your base interest rate – but they must notify you first. A non-penalty rate change will require at least 45 days’ notice.
Other changes should be noted as well. The credit card company may also increase the amount of certain fees or make other changes to your account that may have an impact on your account. If they do, this information will be included in a statement 45 days before the changes take effect.
4. Examine the transaction data. If you report unauthorised charges on your account as soon as possible, you are much less likely to be held liable. Examine the transactions section of your statement when you receive it. Check the statement for any unauthorised or potentially fraudulent charges. If there are any, report them to your credit card company as soon as possible.
Each cash advance or balance transfer to or from your account will also be listed in the transactions section. Transactions can be categorised or simply listed in chronological order.
If you and another family member each have a card linked to the same account, the cards used for each transaction will be recorded.
5. Check the fees and interest rates again. The amount of money you can end up owing your credit card company can quickly add up. Check the fine print of the statement to avoid being caught off guard. Your statement will also include the various specific interests and fees associated with your account.
You’re probably paying different rates of interest on different types of transactions. Determine which types of transactions result in the highest interest charges and try to avoid them.
If you keep paying a certain fee, work on changing your credit behaviour to reduce the amount of money you have to give your credit card company.
Method 3 Keeping Your Debt in Check
1. You must pay your bills on time. Late payment fees are among the most common fees incurred by credit card users. Avoid fees by making payments on or before the due date. Payments are technically due at the end of the business day on the due date of the bill.
You should be able to make payments online. For more information on how to do so, contact your credit card company.
If you choose to mail in your payments, send them in a few days before the payment is due to ensure they arrive on time at the credit card company.
Aside from late payment penalties, you will be charged a higher interest rate on the money you borrowed if you make your payment late.
If you receive a late fee but usually pay your credit card bill on time, contact your credit card company’s credit management department. They might forgive you as a courtesy.
Remember that creditors and credit bureaus are not permitted to report a 30-day late payment unless it is 30 days past the due date.
Set a delivery date earlier than the due date for checks sent by your financial institution to avoid late fees caused by the credit card company’s delayed processing.
2. Don’t go over your credit limit. Excessive use of your credit will result in an increase in your interest rate. It is critical to understand that the amount you currently owe the credit company counts against your credit limit. For example, suppose your credit limit is $10,000 but you already owe $5,000. This means that your “available balance” is $5,000, and if you charge more than $5,000 to the card, you will exceed your credit limit.
Try not to spend more than 10% of your total credit limit—this can be detrimental to your credit score.
3. Make a larger payment than the minimum. A minimum payment amount will be listed on your statement. If you pay this amount, you will be able to pay off your current account balance plus interest in three years. This figure assumes that no additional charges, other than interest, are added to the account balance. However, the longer a balance is outstanding, the more interest you will pay on the borrowed funds. As a result, whenever possible, pay more than the minimum amount.
Paying $10 more than your minimum payment each month can save you thousands of dollars and cut the time it takes to pay off your loan by years.
Each month, aim to pay twice the monthly minimum payment. This will significantly reduce the total amount of interest you pay.
4. Prior to investing, pay off your credit card debt. Some people are enticed to borrow money on credit and invest it. However, the interest you pay on your credit card balance almost always cancels out any potential gains. This is due in part to the fact that you are most likely paying a relatively high interest rate on your credit card debt. Investing money rather than using it to pay off your credit card balance is thought to be a near-certain loss of money in the long run.
For example, you could be paying 18% on credit card balances while earning 2% on a savings account. This means that any savings gains you make will be greatly offset by your credit card balance.
Similarly, don’t try to build a savings account while you have a credit card balance. Pay off your credit card debt first, and then start saving!
Consider paying off your debt as a guaranteed investment if that helps! Because you’re being charged interest, you can avoid an increase in the amount you owe right away by paying it off now!
5. If at all possible, avoid carrying a balance. You should know better than to pay only the minimum balance each month. Even a little more than the bare minimum will go a long way. Of course, it’s best to borrow as little as possible and plan ahead of time to avoid getting into debt in the first place.
Many people keep financially responsible credit card accounts. The most important thing to remember is that you can reduce the cost of borrowing money by repaying it as soon as possible.
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