You may look at your monthly statement and think that it’s in ‘google gog’ but don’t stress as we’ll demystify all things relating to credit card payments to have you understanding your bill in no time. We’ll even have you saving money by the end of this guide!
Your credit card balance is based on purchases you have made during a defined month e.g. groceries, entertainment etc. On top of the purchases you have made, the card balance may also include interest. If you have paid the credit card balance in full each month, the balance will only be the sum off all your expenditure. However, if you have not paid off the previous month's balance, then interest will be included. Find out when you’ll be debt free with our nifty credit card debt payments calculator.
There is a little mathematical equation to calculating the interest owing on your credit card purchases. The good news is you don’t have to do the maths! There’s no harm however in knowing how the interest is calculated each month.
There are three components:
The formula: The outstanding daily balance multiplied by the daily interest rate of your card multiplied by the number of days in the month.
For example: If you owe $2000 on your credit card at 31 January (i.e. month end) with a 15% interest rate, the calculations go like this; $2000 x 0.041% (daily percentage rate) x 31 (number of days in January) = $25.42 (interest owing). Just think, if you had to pay $25.42 in interest each month, that’s just over $300 a year! Pay your credit card back in full each month and you could pocket that $300.
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When you receive your monthly credit card statement you’ll find a lovely big bold figure at the bottom of the page - this is your closing balance. You can make this payment in full or you have the option of making a minimum repayment. Whenever you can, we strongly advise that you pay the full balance owing on your credit card and that way you will avoid paying interest on your purchases.
However if you can only afford to make the minimum repayment there a few important facts you need to know:
Click here to see how long it will take you to pay off your credit card.
As you have just read above, paying only the minimum amount on your credit card statement each month has its downfalls. So to dodge interest charges and to pay off your credit credit quickly in order to become debt free, we highly recommend you do a repayments budget. It’s important to have self-control and to stay within the means of your credit card. So, don’t over spend! A repayments budget is especially vital for those who have irresponsible financial habits. A budget is also crucial to saving money and that could mean you’re financially able to jet overseas for that dream holiday or put a deposit down on your own home. Use the Mozo budget calculator as that will help you estimate how much you can afford to to make in credit card repayments each month.
It’s up to you if you want to take out credit card repayment insurance, it’s by no means compulsary. Credit card repayment insurance will protect you if something unforeseen happens and you can no longer make your payments. Credit card repayment insurance will cover you when:
Different providers have different rates for credit card repayment insurance. Premiums can range from 50cents for every $100 owing on your card. If you’re considering taking out insurance on a new or existing credit card, talk to your bank or financial institution about their costs.
Make sure you plug some numbers into our credit card debt payments calculator to see when you’ll be debt free.
Thanks to the tech savvy world we live in, there are plenty of efficient and quick methods to pay your credit card bill each month. Here are your options:
If you are faced with financial hardship and are struggling to repay your credit card debt, get in touch with your credit provider ASAP. A lot of financial institutions have specialists on board that are there to listen to your financial situation and provide personal assistance. It’s important to act quickly to avoiding spiralling into more debt with late penalties. Here are some more tips on what to do if you can’t pay your credit card debts.
1# Pay off your credit card balance in full each month
2# Don’t overspend. Stick to a budget and use your credit card only when necessary
3# Set up an automatic payment plan
4# If you have more than one credit card consider a balance transfer card
5# Reduce your credit limit if you’re constantly going over your budget