Figuring out what to pay on your credit card can be confusing – there are so many different numbers and balances – which ones should you pay attention to?
The most important numbers on your statement
Due date: It's pretty obvious, but the credit card company must receive your payment by this date or they will likely charge a late fee and interest on the entire unpaid balance. If your due date falls on a weekend, you should mail a check to arrive before the weekend or if you're paying online, you can usually set that payment to happen on the due date, even if it's a Sunday, but don't be late.
Minimum payment: This is the amount you must pay by the due date to avoid late fees and a possible hit to your credit score. However, you can (and should) pay more than this if you can.
New balance: Sometimes listed as 'Statement balance,' this is the total amount of charges that were on your card the day the statement was printed. If you're able to pay this entire amount by the due date and you do that every month, you can avoid paying any interest on your charges.
Paying your credit card online
These days many people are opting to receive their statements online, where the information can be a touch more confusing.
For example, when you log in to your credit card, typically one of the first things you'll see is your current balance. This is the total amount that you would need to pay today to get your account balance down to $0. However, that may not necessarily be the amount you need to pay by your next statement balance in order to avoid interest charges. Confusing, right?
How 'revolving credit' works
Credit cards offer what's often referred to as "revolving credit," meaning that the amount you owe can fluctuate up and down and the balance "revolves" as you charge things then pay them off. Examples of non-revolving credit include car loans, most mortgages and even student loans by the quarter or semester – you borrow a set amount at the terms in place at the time you receive the funds, and pay it back over a fixed period of time. Generally speaking, your payments lower the total amount owed and there is a date that the debt will be paid in full.
Credit cards are the opposite - while you can treat your credit card debt as a non-revolving debt by stopping using them then making a fixed payment each month until the balance is gone (try this calculator to make that plan), by their nature they are revolving because as long as the account is in good standing and you haven't reached your limit, you can always charge it back up. In this way, while not advised, you could carry a balance on your credit card forever.
Statement balance versus current balance
When you have a revolving credit card that you regularly use, it's common for your current balance to be different (and typically higher) than your statement balance. There may also be times that you log in to your credit card account and there is nothing listed under the statement balance – this is typically in the days after you've made a payment but before the next statement has been produced.
One of the benefits of credit cards is that it lets you postpone laying out the cash for purchases until your statement is due – this is usually referred to as the "grace period." Ideally, each month when you receive notification that your statement is ready, you'd pay the amount listed under "statement balance." As long as you do that each month by the due date, you'll avoid interest charges.
When you can't pay the full statement balance
This is where it can get confusing – when the statement balance is more than you can afford to pay, how much should you pay? Credit card companies make money by charging interest on the balance you carry over to the next month, so they would prefer that you only pay the minimum amount required. However, it's a best practice to pay more than that amount whenever possible. To see how much to pay to have a balance paid off by a certain time, use this calculator to make a plan.
What the other numbers mean
Every statement will look different in terms of lay-out, but they will all contain the same basic information.
Credit line: This is the total amount you can charge to your card before you'll be "maxed out."
Credit available: The difference between your credit line and the amount you've charged and not yet paid off. This amount increases with each payment you make and decreases with each charge you add.
Closing date: The date that the statement was printed – any charges made after this won't have to paid until your next statement due to the grace period.
The Credit Card Act of 2009 information: As of this law passing in 2009, credit card companies are required to list how long it would take you to pay off your current balance if all you did was pay the minimum amount, including the total amount you'd pay including interest. They are also required to calculate and tell you how much you would need to pay each month in order to pay off the balance in three years. If you can't afford to pay your total balance off, the three year number is a good amount to strive for.
Interest rate and fees: This is the rate the credit card company will charge on any balance not paid by the due date after the charge appeared on the statement. Most credit cards calculate interest daily, and there may be different rates for different types of balances, for example if you took advantage of a balance transfer offer or if you have a promotional rate in place. The rate for cash advances is often higher, and there are also typically fees associated with this, so try to avoid cash advances if at all possible.