How to manage your credit card billing cycle efficiently
The billing cycle starts the day the credit card is activated and it might start with a balance of some upfront fee, as applicable on the card. Starting from that day, all the transactions on the credit card gets added to the credit card bill.
By ET CONTRIBUTORS | Updated:
The credit card facility young earners must watch out for
Arjun is a young earner, just having started his career as a fashion designer. He has started using his new credit card for making some big purchases for setting up his studio. He does appreciate the newly-discovered facility of buying furniture, lightings etc. on credit, for decorating his boutique. However, he does not quite understand the technicalities and the mathematics of how the credit card works. He is baffled by the fact that even though he pays the minimum balance every month, the amount payable just seems to keep rising. Arjun wants to understand the whole working of credit cards, so that he can manage his finances better.
Understanding the billing cycle of a credit cards is important for financial planning. Once Arjun knows his card billing cycle, he can use the card to the best of his advantage. The billing cycle refers to the period for which a credit card bill is generated. If his credit card statement is generated on the 10th of every month, his billing cycle will start from the 11th of the previous month and continue till 10th of the current month. He must check with his bank about the exact duration of the billing cycle as it varies between 27-31 days.
The billing cycle starts the day the credit card is activated and it might start with a balance of some upfront fee, as applicable on the card. Starting from that day, all the transactions on the credit card gets added to the credit card bill. If any amount is paid back to this credit cards, such as a fuel surcharge waiver, cash or payback or a reversal of any payment made, it is subtracted from the bill and the final bill is generated. Any transaction that is made after the billing cycle reflects in the next statement. In the above example, if Arjun makes a transaction on the 12th of the month, it will only reflect in the next bill, and will give him more time to pay it.
The minimum payment on a credit card is the minimum amount you can pay on or before your credit card payment due date to maintain your credit card account. However, Arjun must realise that making the minimum payment doesn’t prevent the bank from levying interest on the remaining amount. This interest can be as high as 48% and it eventually means that he will take several months to repay a single credit card bill.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
Understanding the billing cycle of a credit cards is important for financial planning. Once Arjun knows his card billing cycle, he can use the card to the best of his advantage. The billing cycle refers to the period for which a credit card bill is generated. If his credit card statement is generated on the 10th of every month, his billing cycle will start from the 11th of the previous month and continue till 10th of the current month. He must check with his bank about the exact duration of the billing cycle as it varies between 27-31 days.
Young earners, new to the working world, often end up feeling lost about how credit cards work and the card billing cycle functions, even after having purchased items via the newly obtained credit card. One may not be able to understand the technicalities and the math behind the credit card's working. Even more confusing can be the fact that despite paying the minimum monthly balance, the amount payable just seems to augment. Here is some help for you to understand how credit cards function, so that you can manage your finances better and more efficiently.
The billing cycle starts the day the credit card is activated and it might start with a balance of some upfront fee, as applicable on the card. Starting from that day, all the transactions on the credit card gets added to the credit card bill. If any amount is paid back to this credit cards, such as a fuel surcharge waiver, cash or payback or a reversal of any payment made, it is subtracted from the bill and the final bill is generated. Any transaction that is made after the billing cycle reflects in the next statement. In the above example, if Arjun makes a transaction on the 12th of the month, it will only reflect in the next bill, and will give him more time to pay it.
The minimum payment on a credit card is the minimum amount you can pay on or before your credit card payment due date to maintain your credit card account. However, Arjun must realise that making the minimum payment doesn’t prevent the bank from levying interest on the remaining amount. This interest can be as high as 48% and it eventually means that he will take several months to repay a single credit card bill.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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