It’s a good idea to make more than the minimum payment on your credit card. Paying more than the minimum helps reduce your balance, shrink the amount of interest you’ll pay in the future, and might help your credit score by lowering the amount of debt you hold.
If you have the funds, you may even want to pay your entire balance. But if you’ve ever read your credit card statement closely, you’ve probably noticed that there are two balances: the statement balance and the current balance.
So, what’s the difference, and which one should you pay if you have the money?
The Statement Balance
The statement balance is the total amount you owe on your credit card, as of the end of the last billing cycle. This will include purchases you made in the last billing cycle and any outstanding balance that was left over from billing cycles past.
Once your credit card’s monthly grace period ends, interest charges will be charged to your account on any debt from your statement balance that hasn’t been paid. That’s why, to avoid interest, you need to at least pay your statement balance within the grace period.
The Current Balance
The current balance is the total amount of purchases that have cleared your credit card account to date and have not yet been paid. This includes both your statement balance and any charges you have made within the current billing cycle. For example, the current balance on day 20 of your billing cycle will include the balance left over from previous billing cycles and purchases that have been made within the last 20 days.
In short, the current balance is the most up-to-date version of your credit card balance (though it won’t include any charges that have yet to clear your account).
Which Should You Pay?
If you have the money, paying either your statement balance or your current balance is a great way to manage your credit card. It allows you to take advantage of the benefits of a credit card – such as rewards – without going into debt or paying interest charges.
Paying the statement balance means you won’t be charged interest on purchases you made from the previous billing cycle, and it will eliminate any previous balance. However, it won’t eliminate any charges you’ve made during the current billing cycle.
Paying your current balance zeroes out your credit card balance up to the date you pay (minus any pending charges that haven’t cleared your account yet). This will help you avoid interest on past charges and set you up in a good position for next month.
Whichever balance you choose to pay, paying your balance in full makes good financial sense. It might help your credit score, eliminate charges that could accrue interest, and helps you avoid racking up unmanageable credit card debt.