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    Credit Card Bill- a Better Understanding

    Credit card bills have become a staple of most of our lives as we move towards a growing dependence on credit. Credit card bills usually contain a list of information, some of it intelligible, while the rest appears to be the result of advance computations that you will never understand.

    For most of us, the most important sections of a credit card bill are the ones that inform us of the total amount due and the date by which that amount is to be paid.

    There is a lot more to a credit card, bill, however, and knowing all the components of your bill can help ensure you don’t miss bill payments or lose out on perks that your card might offer you.

    What’s My Credit Card Bill Contain

    Besides just the amount due and the total purchases made during that period of time, a credit card bill contains a list of other information relating to your purchases and spending habits. Along with these, additional charges and fees are also a feature, and one you should be aware of, especially since these could raise the total amount you have due quite exponentially.

    The charges that are reflected in your credit card bill are as given below:

    Previous and Purchase Balances

    The biggest portion of your monthly credit card bill will consist of the previous and current purchase balances you have made over the course of your billing cycle. These charges comprise of any outstanding bills (amount left unpaid from your last bill) and your current bill charges.

    Cash Advances

    Using your credit card to withdraw money from an ATM would result in a cash advance charge, which is displayed as a ‘cash advance’ on your credit card. Such a transaction would attract interest immediately, and does not have a free-look period. Cash advances also attract higher interest rates and should be avoided unless absolutely necessary.

    Balance Transfers

    A credit card enables you to transfer your debt from one card/multiple cards to other cards. Doing this will result in the debt being added or transferred to the other card and does not cancel the debt. If you have moved debt from another card to this card, it will reflect along with the interest charges associated with it in your bill.

    Interest

    One of the most important aspects of a credit card bill, the interest due is the charge associated with taking money on credit. In other words, it can be viewed as the charges for what is essentially a loan. Failure to pay your due amount each month will result in the balance amount being carried forward to your next billing cycle, along with interest charges on that amount. Thus, your current bill will display the amount due based on your purchases charged to the card during this period as well as the interest and balance that was carried forward, if any.

    Fees

    Credit cards usually always come with a laundry list of fees, some of them more obvious than the rest. Some of the fees associated with your credit card are listed below:

    • Annual fee- this is akin to a membership fee and is levied once a year. In some cases, the fee can be broken up over bill cycles to ease the burden of paying the whole amount at once. In this case, it can be referred to as a ‘monthly fee’. Some cards waive off the annual fee if certain criteria are met, while others do not have an annual fee.
    • Transaction fee- a transaction fee is a charge levied on certain types of transactions. The most common transactions that attract a fee are balance transfers and cash advances. Using your credit card abroad can also attract fees. The fee percentage charged would depend on your credit card type and the bank.
    • Penalty fee- a penalty fee is levied on actions such as missing a credit card bill payment, using your card over your assigned credit limit or having a payment withdrawn due to insufficient funds.

    How to Pay Your Credit Card Bill

    After receiving your credit card bill, you should ideally try to pay off the entire amount before the due date to avoid attracting interest charges on your next bill. In this way, you will avoid having to pay off ever-increasing amounts due to various fees and charges being added to your bill each billing cycle. Your credit card bill will have a section titled ‘Minimum Amount Due’, which is explained below.

    Minimum Amount Due

    As the name suggests, the minimum amount due is the lowest amount possible that you have to pay to keep receiving credit from the bank. The minimum amount due is usually calculated on the basis of the below formula:

    Minimum payment= interest + 1% of total balance due

    Paying only the minimum amount due on a credit card is to be avoided as the balance amount will attract interest charges and be added to your next bill, which would make the amount payable at that point very steep. Thus, the cycle of making minimum payments would continue and you would be charged interest on a large sum of money.

    In a worst case scenario, you could be paying off credit card debt for years, with your interest rate only increasing, sinking a major portion of your income into card payments.

    Paying less than the minimum amount due is considered a missed payment, which is explained in detail below.

    What Happens If I Miss a Payment

    Missing a credit card payment will result in unpleasant consequences for the amount you will have to pay. Most banks and credit companies levy late payment charges based on the amount of time taken to clear the pending bill.

    The later the bill is cleared, the higher the charges and penalties associated with it. It is preferable to pay off a bill as soon as you receive it to prevent you forgetting to pay it, as this could end up being a costly mistake.

    Having overdue credit card bills will also have a negative impact on your credit score, making lenders wary of extending credit to you.

    How Your Bill Payments Are Applied

    If you pay any amount that is lower than your total amount due, the bill amount is distributed among the payments that need to be cleared first in your bill.

    If you have any outstanding amounts from your previous bill, the money you have paid will be put towards clearing that debt first.

    Any payments that have a higher interest rate or have fees associated with them will be cleared first as well. For example, if you have made a cash advance or a balance transfer, these transactions will be cleared first.

    If you pay off your bill in its entirety, your bank will just clear all dues instead of picking and choosing how to spread out your money towards paying the amount you owe.

    This will also prevent you from accruing interest on the money you owe and having to pay a higher amount the next bill cycle.

    Understanding your credit card bill its various components will help you make an informed decision regarding your bill payment plan as well as help you understand how the bank charges you for purchases and transactions made on your card. This will, in turn, help you cut down on interest payments and avoid card debt.  

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