Job/ Credit Card/ Credit Card Balances

Due Date                  Previous Balance                        Interest Rate

Overdue Amount                     Missed Payments                   Late fees                   Defaulted                     

Loans                 Installments                       Finances                                   

Credit History               Blacklisted             

All these words are linked, They are related to a grand topic Credit Card. Credit card industry is making getting a lot of users who are quite young and who are unfamiliar with the credit card calculations. These are the users who start working out of college and who wish to shop on every store in the city and to whom swiping a credit card becomes a status symbol. Let begin to gain a little more knowledge on this subject, as knowledge is the most important tool to deal with our finances and debt.

Credit Card Terminology

Statement Date: The date your statement is generated. This will include all charges that have reflected on the bank system by this date. Most commonly it is all the transactions made 1 day before the statement date.

Due date: This is the deadline or the date BY WHICH you have to make a payment for the statement in hand, or at-least pay the minimum payment to avoid any late charge on the next statement. Due date is normally 45 days after the statement date

Late payment charge: This is the charge the bank applies if you miss to pay the minimum balance due on the statement.

 To explain the term with the help of visual aid. Please see the below figure

Now say the first statement of your credit card is on the 1^st of July. After 45 days is when you will have your first payment due that is10^th August. If you pay the entire amount of this statement you will not see any interest charges made on the statement, on the next statement.  This is what is known as the grace period.

A grace period :- This is when you get a credit free duration of more than 30 days. That is after your statement cycle. However this, will be applicable to you only if you believe in paying your balances in full. If you pay your balances in full you will not get any interest charges. Only the service charges which mostly are 10% will be applicable

However what happens if you only pay the minimum on Credit Card?

Let do a little  to see how your calculates the balance

Say you have a credit card with

Interest rate : 2.5%

Balance of 3000 only of purchases, (excluding service charge and interest rate) .

And your bank charges minimum payment on the basis of 5% of the balance. ( Many banks keep a fix amount that they charge, like a minimum of 5% or 500 which ever is higher)

How how does the bank apply the payment you make.

Minimum Payment= 3000*5/100= 150

Now when you pay 150, bank will first take the interest rate on the statement, which is 2.5%

so:- 3000*2.5/100= 75

150 - 75 = 75 balance from the payment you made.

Then it goes to the service charge that the bank charges which is mostly 10%  of the balance

= 3000 * 10 /100 = 300

Therefore 300 -75 = -225.

So the next statement. Your balance will be . Previous balance 3000 - 150 = 2850.

And 2850 * 2.5/100 = 71.25 

2850+71.25= 2921.25. on service charge 2921.25 * 10/100 = 292.12 = 292.12+2921.25 = 3213.37

The final amount on your statement will be 3213.37.

And if you pay the minimum again. 160.66 new balance will be 3052.17.

And a charge of 76.30 as interest and 3456.46. this will be your new balance after service charge, if no new purchases get added on it.

So in a duration of two months you have gained an amount of 456.46 after making payment of  310.67

So the total amount you have paid on your purchases of 3000 in two months is 310.67+ 456.46= 767.12.

What goes down is your INCOME, and what goes up is your BALANCE ......................................