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    Credit Card Billing Cycle

    Billing Cycle of Credit Card
    Credit Card Billing Cycle

    If you have just started how to use credit cards, the probability of you not knowing how the billing cycle works is high. There are different factors that you need to understand to know how the billing cycle for your credit card actually works. There are several factors that are considered by different banks before calculating the outstanding balance in your card. If you want to understand this complex process, then this piece will help you to a great extent.

    How Does a Credit Card Billing Cycle Work (with Example)

    In simplest terms, billing cycle is the time period for which you must pay the amount that is outstanding on your credit card. Let’s consider that the belling period on the credit card you use is 5th April to 4th May. This means that the bill for your credit card is generated on the 4th of every month. The bill that you get every month will contain all the information about the expenses from the last month. If you buy anything on the 5th of a month, then it goes to the next billing cycle.

    Credit Card Grace Period

    The grace period refers to the time period that is provided within which you must clear your last due bill amount. During this particular period, you will not have to pay any interest on the outstanding amount. For example, if you have a grace period of 15 days, then that is the time when you do not have to pay any interest. Considering the previous example, if 4th of each month is your billing date and you can enjoy 15 days of grace period, then till 19th of every month you can enjoy grace period on your credit card. Post 19th of every month, interest will be charged on the outstanding balance. A maximum of 55 days can be availed as grace period.

    What is meant by Minimum Payment

    In the simplest of terms, minimum due or minimum payment is the least sum of money that you must pay every month towards our outstanding bill on the credit card. Negative points or late fee charges will not be triggered if you keep making the minimum due payments towards the credit card balance.

    How is the Minimum Amount Calculated

    Different banks use various methods for calculating the minimum due amount on the credit card. The two most popular ways are as follows:

    • Percentage method – Some of the credit card companies calculate the minimum balance as flat percentage on the total outstanding amount. The percentage can vary from one bank to another bank. However, the range is between 12% to 14%.
    • Percentage+Fees+Interest method – This is also a very popular way of calculating minimum balance due on the credit card. The base percentage is added in this process. Along with this late fees and processing charges are also added with the interest on the outstanding balance.

    Bottom Line:

    So, this is how the minimum due balance on the credit card is calculated on a month-on-month basis. Please, remember that clearing the entire outstanding at once is always the better option. Paying the minimum balance only associates interest charges and can make repayment difficult for you in the long run. Also, use the credit card to limit which can be repaid by you easily without creating any financial pressure on you.

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