Summary: Your credit card balance is the amount you owe a credit card company. Before you apply for a credit card, you should consider all of the additional charges that may be associated with it before signing up. This balance is comprised of three factors: your purchases, payments, and interest charges.
The Federal Reserve reports that 81% of Americans over the age of 18 have at least one credit card, and 63% of cardholders admit to sometimes carrying a balance on their cards.
When it comes to credit card terminology, you may find it confusing. For instance, if you have a credit card that you have been making payments on, you may wonder, “What is the amount you still owe to the credit card company?”
Your credit card balance is the total amount you owe your creditors, including principal and interest.
What Are The Components That Make Up Your Credit Card Balance?
To calculate the balance on your credit card, you must take into account three factors: the amount you charged to purchase goods and services, the amount you paid to the creditor, and the amount you owe in interest charges.
Consider the following example.
An example would be the Chase Bank credit card Michael receives from Chase Bank with a $5,000 credit limit and a fixed rate of interest of 9.99% for the first year. The bank waives the $50 annual fee for the first year. Michael uses his credit card to buy a new sofa and mattress. Michael has until the due date of his monthly bill to pay off his balance and avoid any interest charges. Unfortunately, Michael does not have enough money to pay off his balance by then. Instead, he sends Chase Bank $500 as a payment.
When Michael receives his credit card statement after the due date, it states that he now owes Chase Bank $1,512.49 on his account. How did the bank come up with that figure? Michael paid $500 toward his balance; shouldn’t the balance now be $1,500? It is worth noting that, since Chase Bank gave Michael a fixed APR of 9.99%, they charged him interest for the remaining balance on his credit card after he paid his balance off. The interest charge is equal to 9.99% divided by 12 months, or 0.8325%. Therefore, the bank multiplied 0.8325% by $1,500 to determine that Michael owes an additional $12.49.
Although that is a straightforward example, determining the total amount you owe toward a credit card balance can be complicated, especially if your creditor charges variable or compound interest.
Are There Any Factors That Can Impact Your Credit Balance?
The amount you owe your creditor may be affected by several factors.
Many credit card providers charge annual fees. Some banks also charge a yearly fee along with a lower interest rate. The fee ensures that the bank receives some money for its lending services, especially when customers tend to pay off their cards each month in full.
The annual percentage rate (APR) is the interest rate charged by your creditor on your outstanding balances. APRs can be fixed or variable. Fixed APRs remain the same, while variable APRs adjust based on the benchmark used by the creditor.
It is not uncommon for creditors to charge a fee for withdrawing cash against their credit lines. The fee may take the form of a special cash advance APR or a specific fee.
A late payment fee is another typical fee associated with credit cards. If you fail to pay by the due date, you will be charged a late payment fee.
You should read your credit card terms and conditions carefully to understand what your creditor may charge you. Other fees and interest rates may apply to your account, but these are the most common.
Avoid Your Credit Card Provider’s Fees
It may not always be possible to avoid your credit card provider’s fees. For instance, if your creditor charges an annual fee for its card, it will bill you even if you do not use it.
There is, however, a way to minimize your credit card balance. The best way to do so is by paying your entire balance each month. This will avoid late fees as well as reduce the interest you will be charged by your creditor.
There are times when people make purchases on credit, but they cannot afford to repay the creditor the entire balance immediately, in which case they should pay as much as they can, and continue doing so until they have fully repaid the creditor.
If You Can’t Afford To Repay Your Creditor, Here’s What You Should Do
It is possible to have difficulty making monthly credit card payments if you are experiencing extenuating financial circumstances. To avoid making your situation worse, you should contact your creditor and explain your situation to them. Until you get back on your feet, you may receive some leniency.
See If You Qualify for Credit Card Relief
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If you have been sued for credit card debt, you should take the lawsuit seriously. Do not ignore the lawsuit in the hope that it will simply disappear.
- If you are sued, you will receive a court document called a Complaint (also called a Petition in some states) listing all the claims against you. The claim must be responded to by you. You may admit, deny, or deny based on your lack of knowledge.
- It is important to assert your affirmative defenses, which are legal reasons why you should not be held liable for the debt. For example, the statute of limitations may have expired on the debt. The amount claimed by the plaintiff may be incorrect. You can use many defenses to strengthen your case in a debt collection lawsuit.
Be sure to file the Answer with the court and send a copy to the opposing attorney. Doing so will help you to avoid a default judgment.
Following the three steps outlined above, you can also consider contacting your creditor to discuss your debt settlement options after following these steps. This may be a good option if you’re unable to pay off your debt in full and need a way to reduce the amount you owe. Creditors are often willing to negotiate a lower amount of debt that you can pay off in a manageable way.