That’s why in this article, we’re going to walk you through the smart way to handle your credit card payments. We’ll show you how to prioritize which balance to pay off first, so you stay in control of your money instead of letting it control you.
First Things First: Know Your Credit Card Statement
To master your credit card, you first need to understand what you’re looking at when you open that monthly statement. At the top of the page, you’ll see four key details:
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Statement Date: The day your credit card company issues your monthly statement. All purchases from the previous statement date up until this day will show up here.
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Payment Due Date: The date by which you need to make at least your minimum payment to avoid late fees. Easy enough, right?
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Minimum Payment Due: This is the bare minimum you must pay to keep your account in good standing. However, just paying the minimum keeps you in debt longer—more on this later!
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Combined Credit Limit: If you have multiple credit cards with the same provider, this is the total amount you can borrow across all your cards.
The Three Key Balances You Need to Know
Next, let’s talk about the three types of balances you’ll typically see on your credit card statement. Each one plays a different role, and understanding how to handle them is key to staying on top of your finances.
1. Statement Balance
This is how much you’ve charged to your card for the current billing cycle. For example, if your statement date is July 28 and your statement balance is RM3,500, that’s the total amount you spent between June 28 and July 27.
Pro Tip: If you pay off this balance in full each month, you won’t be charged any interest, and you get to keep using your card during the next billing cycle.
2. Outstanding Balance
This is the total amount you owe the bank, including any past unpaid amounts. If you didn’t pay your full statement balance last month, that leftover amount will be added to your outstanding balance. Basically, this is the number you want to get down to zero as soon as possible.
3. Minimum Payment
Your credit card provider will always ask for a minimum payment, which is usually a small percentage of your balance or a fixed amount, whichever is higher. While paying this keeps your account current, it’s the slowest way to reduce debt and can lead to costly interest charges.
So, Which Balance Should You Pay Off First?
Now comes the big question: which balance should you pay first to get the most bang for your buck?
The best strategy is to pay off your outstanding balance in full. This clears your debt completely, and you won’t owe any more. But let’s be real—that’s not always possible for everyone.
If paying off your full outstanding balance is tough, aim to at least pay off your statement balance every month. This allows you to avoid interest charges while keeping your finances under control. Plus, it gives you a little breathing room since any charges made after your statement date won’t be due until the next billing cycle.
What you definitely want to avoid is only paying the minimum payment. Sure, it keeps you out of trouble for the moment, but in the long run, you’ll barely make a dent in your debt, and the interest will keep piling up.
Bottom Line: Take Control of Your Credit Card
Credit cards are great when used wisely, but they require careful attention. To stay in control, aim to pay off your statement balance or outstanding balance each month, and steer clear of relying on the minimum payment.
By following these simple strategies, you’ll avoid unnecessary interest, keep your finances in check, and continue using your credit card as the powerful tool it’s meant to be.