Should You Pay Your Credit Card's Minimum, Statement, or Current Balance?

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Your credit card has several different amounts you can pay. The one you choose has a big impact on how much interest you get charged -- or if you need to pay interest at all.

For people who are starting out with credit cards, paying the bill can be more confusing than expected. When you log in to your online account and go to the payment page, there will be three amount options: The minimum balance, statement balance, and current balance. Or, you can choose to pay a custom amount.

The best approach is to pay your statement or current balance. If you do, the card issuer won't tack on any credit card interest. Paying the minimum isn't recommended unless that's all you can manage. To understand why, it helps to know how each of these payment options works.

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Minimum payment

The minimum payment is the minimum amount to stay current on your credit card bill. Every card issuer has its own formula for calculating this. It's generally 1% to 2% of the card's total balance with a fixed minimum, such as $25 or $35.

If you don't pay at least the minimum by the due date, then it's considered a missed payment. For example, if your card's minimum payment is $50 and you pay $25, the card issuer can still charge you a late fee.

The cost of only making minimum payments is that it doesn't put much of a dent in your total balance. It can take a very long time to pay off your card when you're paying the minimum, and during that time, the card issuer will charge interest. If you use your credit card regularly and only pay the minimum, the balance may also continue to grow, putting you deeper into debt.

Statement balance

The statement balance is the credit card's balance at the close of the last billing cycle. It includes all unpaid transactions as of that date. If your card's billing cycle closes on the 25th of each month, then the statement balance is the balance on the 25th.

When you pay the statement balance by the due date, then the card issuer doesn't charge you interest on your purchases. For that reason, it's great to get into the habit of paying the full statement balance every month. You can use your credit card for purchases interest free this way.

Note that the interest-free period doesn't apply to credit card cash advances. Credit card companies charge interest on cash advances immediately. These transactions also usually have a higher interest rate and an extra fee, which is why you should try to avoid this type of transaction.

Current balance

The current balance is the credit card's balance at that exact moment. It includes all unpaid transactions, except for recent transactions that are still pending. Unlike the statement balance, it also includes transactions made since the close of the last billing cycle.

Here's an example to explain the difference. Let's say your credit card's billing cycle closed with a $1,000 balance. Since then, you've spent another $100. The statement balance would be $1,000, and the current balance would be $1,100.

You can avoid interest by paying either the statement or current balance. If you pay the statement balance, then any unpaid transactions will go on your next credit card bill. But you may want to opt for the current balance if your card has a low credit limit. By paying the current balance, you'll bring your card's balance back to $0 and free up more of your credit for the next month.

How much should you pay on your credit card bill?

Aim to pay either your credit card's statement balance or current balance every month. When you do, you can take advantage of all the benefits the top credit cards offer without any interest charges.

If you can't do that, then pay as much as you can afford. You don't avoid interest entirely this way, but you at least pay down your balance as much as possible.

Look at the minimum payment as the emergency option. If money is tight, then you might need to pay the minimum. This keeps you from having any missed payments on your credit history. Just make sure that you focus on paying the balance down to zero to get out of credit card debt as soon as possible.

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