How to Understand Credit Card Bills

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1Recognizing the Importance of Your Statement

2Understanding Each Section of Your Statement

3Keeping Your Debt in Check

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Tips and Warnings

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Credit card statements are notoriously hard to read. There are, however, several important reasons you should make sure you understand everything about your credit card statement. For instance, scanning each statement will helps you detect any unauthorized charges or errors. Further, your credit card statement contains information that can help you plan your financial future, by tracking how much interest you're paying and how best to pay off your credit card debt.

Steps

Method 1

Method 1 of 3:

Recognizing the Importance of Your Statement

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   Consider what a credit card statement is. In simplest terms, your credit card statement provides a summary of what you’ve done with your card for a specified billing period. Any transactions or changes regarding your account will be included. Note that the specific days of the billing period will always be included. For instance, any purchases or other transaction after the final day of the billing period will be on the following credit card statement.
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   Keep track of your total credit card balance. In other words, your credit card statement will help you keep track of your debt. All of the terms, numbers, and percentages on your bill are listed because they all affect your total credit card balance. With each credit card statement, you’ll likely have a new balance. This is true even if you did not make any transactions with your card, as interest is accruing on the money you already owe the credit card company.
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   Monitor your available credit. Your “available credit” is the amount of money you can charge to the card without incurring penalties. This will directly reflect your total credit balance. Your available credit is found by subtracting the amount you already owe from your credit limit.
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   Understand how interest works. You pay your credit card company for the opportunity to borrow and spend money. The amount you pay is determined by the interest, often referred to as the annual percentage rate. In simplest terms, you pay back the amount you borrow, plus a percentage (your interest rate) of the amount you borrow for each year you carry the debt.

   • Interest is added monthly for each month you maintain a positive credit balance, or each month you owe the credit card company.
   • For instance, if you borrow $100 on a 20% annual interest rate, you’ll ultimately have to pay the credit card company $120. This includes a return of the amount you borrowed, plus the cost for borrowing it. This cost is determined by the interest rate you agree to when you set up your account. This is an oversimplified scenario that assumes you paid back the full amount in one year, and made monthly payments on time.
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Method 2

Method 2 of 3:

Understanding Each Section of Your Statement

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   Locate the summary of account activity. This portion of your statement will show the totals for the charges, fees, and other transactions made during the billing period covered. Here, you’ll see the totals of the payments you made to the credit card company, credits your account received, and purchases you made with the card. You will also see the totals of balance transfers and cash advances to or from the account.

   • As the name of the section implies, this is a summary of the rest of the information included in the statement. There are separate sections that will list each specific thing that happened to your account, such as each purchase (or type of purchase) you made.
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   Check your payment information closely. Your payment information includes the total amount of money you owe (your balance), the minimum payment, and the date your payment is due. The minimum payment will tell you the least amount of money you need to pay by the payment due date.

   • A “late payment warning” will also be included. Here, you’ll find information about the additional fees and change in interest rate that may apply if you miss a payment deadline.
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   Note any change in your interest rate. Changes in your interest rate are extremely important, as they will affect the amount you pay in interest on the money you borrow with your card. Penalty rates will apply if you pay the bill after the due date or if you spent more than your credit limit.

   • Your credit card may also simply change your base interest rate – though they must tell you before they do so. You will have at least 45 days’ notice before a non-penalty rate change.
   • Note other changes as well. The credit card company may also raise the amount of certain fees or make other changes that could affect your account. If they do so, this information will also be included on a statement 45 days before the changes go into effect.
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   Review the transaction data. You are much less likely to be held responsible for unauthorized charges on your account if you report them quickly. Upon receiving your statement, look at the transactions section of the statement. Ensure that there are no unauthorized or potentially fraudulent charges on the statement. If there are, report them to your credit card company as soon as you are able to do so.

   • The transactions section will also include each cash advance or balance transfer to or from your account. Transactions may be grouped by type, or they may simply be listed in chronological order.
   • If you and another family member each have a card associated with the same account, the specific cards used for each transaction will be noted.
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   Re-check fees and interest rates. The amount of money you can wind up owing your credit card company can add up surprisingly quickly. Refer to the statement's small print to ensure that you are not caught by surprise. The different specific interests and fees associated with your account will also be included in your statement.

   • You’re likely paying different amounts of interest on each type of transaction. Identify which types of transactions lead to the highest interest charges and try to minimize these sorts of transactions.
   • If there’s a particular fee you keep paying, focus on changing your credit behavior to reduce the money you have to give your credit card company.
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Method 3

Method 3 of 3:

Keeping Your Debt in Check

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   Pay your bills on time. Some of the fees most commonly incurred by credit card users are late payment fees. Avoid fees by always making payments before the day they are due. Technically, payments are due at the end of the business day on the bill’s due date.

   • You can likely make payments online. Contact your credit company for the specifics on how to do so.
   • If you choose to mail in your payments, send in your check a few days before the payment is due to ensure it gets to the credit card company on time.
   • Aside from late payment penalties, the interest rate you will be charged on the money you borrowed will be higher if your payment is late.
   • If you get a late fee but usually pay your credit card bill on time, talk to the credit management department at your credit card company. They might offer you a courtesy forgiveness.
   • Keep in mind that creditors and credit bureaus are not allowed to report a 30-day late payment unless it's actually 30 days past the due date.
   • Set a delivery date earlier than the due date for checks sent by your financial institution to avoid late charges resulting from delayed processing by the credit card company.
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   Do not exceed your credit limit. Exceeding your credit limit will also lead to an increase in your interest rate. It is important to recognize that the amount you already owe the credit company counts against your credit limit. If, for instance, your credit limit is $10,000, but you already owe $5,000. This means that your “available balance” is $5,000, and you will exceed your credit limit if you charge more than $5,000 more to the card.

   • Ideally, try not to spend more than 10% of your total credit limit—this can be really bad for your credit score.
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   Pay more than the minimum payment. You statement will include a minimum payment amount. Paying this amount would allow you to pay off your current account balance, plus interest, in three years. This amount assumes that no more charges others than interest are added to the account balance. However, the longer a balance is outstanding, the more you will pay in interest on the money you borrowed. Accordingly, pay more than the minimum amount whenever you are able.

   • Paying $10 more than your minimum payment each month can save you thousands of dollars and shorten the amount of time it takes to pay of your loan by several years.
   • Aim to pay twice the monthly minimum payment each month. This will drastically diminish the amount you pay in total interest.
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   Pay down credit card debt before investing. Some people are tempted to borrow money on credit and make investments with it. Almost always, however, the interest you’re paying on your credit card balance will negate any potential gains. This is partly because you’re likely paying a relatively high interest on your credit card debt. Investing money instead of using it to pay off your credit card balance is considered to be an almost guaranteed loss of money overall.

   • For example, you might be paying 18 percent on credit card balances, but earning 2 percent on a savings account. This means your credit card balance would drastically offset any gains you make by placing money in savings.
   • Similarly, don’t try to grow a saving account when you have outstanding credit card balance. Pay off your credit card debt and then start building your savings!
   • If it helps, think of paying off your debt as an guaranteed investment! Since you’re being charged interest, you can immediately eliminate an increase in the amount of money you owe by paying it off now!
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   Avoid carrying a balance if possible. You know better than paying your minimum balance every month. Even just a bit more than you minimum will help immensely. Of course, it’s best to minimize the amount you borrow and plan ahead to avoid incurring debt altogether.

   • Lots of people maintain financially responsible credit card accounts. The most important thing to remember is that you can minimize the cost of borrowing money by paying it back as quickly as possible.
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Tips

• Opt to receive your statements online. You’ll get the exact same information you'd find in a conventional statement, but without the environmental impact of using paper.
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