Whenever you check your credit card balance, generally, you are given two- the statement balance and the current balance. While they might appear the same at first glance, they are often different. So, what is the difference between the two? And which do I pay off to avoid interest?
For the uninitiated, your statement balance is the amount you owe as of your latest billing cycle. Credit card statements are typically issued at the end of each billing cycle. The amount that you owe as of the last day of that billing cycle is your statement balance.
On the other hand, your current balance is all of your unpaid charges on the credit card, up to the date of your inquiry. All of the unpaid charges on your credit account, sometimes including all transactions that are currently being processed at the time of the inquiry, is your credit card’s current balance.
Which Do I Pay Off To Avoid Interest?
Most financial experts and credit card issuers will tell you to pay off all of your outstanding balances before the beginning of a new billing cycle to avoid having to pay for interest. However, if you are having trouble with your finances, it is best to know which to prioritize.
To avoid any interest charges from regular purchases, you need to pay off your statement balance before the start of a new billing cycle. Purchase APR is only applied to unpaid statement balance portions.
However, it is worth mentioning that even if you have a $0 current balance at the end of a billing cycle, you will not avoid paying for interest. Unless, of course, your entire statement balance is paid off.
The opposite can be said about cash advances. If you have taken out a cash advance since the end of your billing cycle, you will need to pay off your current balance in order to avoid interest or any charges from accruing.
Because of the method payments are applied, you will end up having to pay for interest on the cash advance if you only pay for your statement balance before the end of the billing cycle. Cash advances will also generally have a higher interest rate, meaning if you fail to clear your current balance before the end of a billing cycle, you’ll end with a larger-than-usual interest charge.
If you are carrying a statement balance over to a new billing cycle, you may be able to pay it off without incurring interest charges because of a ‘grace’ period. A typical grace period is 20-25 days. Although, this grace period will vary depending on the type of credit card and the credit card issuer.
It is also worth mentioning, that if you are only able to make a payment of the minimum amount, the payment will only be applied to the balance with the lowest APR.
Speaking of minimum payments, if you are struggling to fulfill your credit card obligations, consider making only the minimum payment. While this lengthens the amount of time you have to pay off a credit card, it avoids you from missing on a credit card payment.
Having an instance of late payment can cause your credit score to drop significantly. In some cases, a single late payment can drop a credit score, 90-110 points. What’s more, late payments will remain on your credit report for two years. Meaning, for two years, your late payments will continue to negatively affect your credit score.
The Bottom Line
Both statement balance and current balance needs to be paid off if you want to keep your credit card’s account status in the green. However, if you are having trouble paying off the entirety of your credit card, depending on the transaction, you may choose to pay one or the other.
Paying off at least the minimum, if you simply cannot pay off your entire balance, is also an option. Having to suffer from late payment is not worth the price of paying off the minimum amount. If you have late payments pulling your credit down, call us at 888-799-7267 to schedule a Free Credit Consultation.
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