Here are some things to look for the next time you open your monthly bill:
First, take a look at the Account Summary. It includes the total balance, minimum payment due, due date and remaining credit available. Knowing the payment date ensures you can avoid late or missed payments. Knowing the remaining available credit can help prevent you from going over the credit limit. Both late payments and overages carry significant fees, so reviewing the summary is a smart first step.
The credit card company determines the minimum payment – and it is in their best interest to keep you paying as long as possible. As such, the minimum payment is small – usually just enough to cover the interest and a small portion of the principal. Paying only the minimum payment each month extends the length of your payback period and increases the amount of interest you will pay over time.
The 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act requires credit card companies to include a Minimum Payment Warning box on your credit card statement. This box will show you exactly how long it will take you to pay off the full balance paying only the minimum payments each month, and it will show you how much you will eventually pay over time. For example, a $3,000 credit card bill with a $75 minimum payment will take 52 months and will eventually cost $3,850. This information is provided directly on the credit card statement.
In addition, the CARD Act also requires companies to indicate what monthly payment would be necessary for the entire balance to be paid off within 36 months. In the example above, paying the minimum payment resulted in 52 months of payment. This portion of the credit card statement would show that in order to pay the balance off in full within 3 years, the monthly payment would be $100. Paying just $25 more per month will save you over a year of payments and over $300 in interest.
Reviewing and identifying transactions is a good way to prevent fraud or identify theft. Companies might use acronyms or different names, so paying attention to the amount and the date of transactions might be helpful in identifying each one. Additionally, some pending and recent transactions that took place after the statement window might not show up on the current statement (they will instead show up on the next statement). It is important to take those amounts into consideration when determining the total amount owed, especially in relation to your credit limit.
A credit card statement also includes the total amount of interest you have paid for the calendar year. This is a great visual to see how much you are actually paying by using your credit card. Keep in mind that even if you are in good standing (paying at least the minimum payment on time), as long as you are carrying a balance from month to month, you will be incurring interest.
Likewise, in addition to interest, the statement will also show the fees incurred for the year. Oftentimes, descriptions and conditions of fees are hidden in the fine print of credit card contracts. By looking at your statement, you can see if you are actually being charged any fees and how much they are accumulating.
If you were charged interest for a particular period, the calculation of the interest charge will be included on the statement. This is particularly helpful to see exactly which interest rate is being used. Credit Card companies often offer “teaser rates” that expire after six months or one year. Once that period has lapsed, the interest climbs to a higher rate. Some credit cards will increase the interest rate being used in the event of a late or missed payment. This causes the interest rate to be higher than it was originally. In addition, cash advances are normally charged at a higher interest rate than purchases. Knowing exactly how much you are being charged might help you become aware of how much your purchases truly are costing you.
By taking a few minutes to review some key components of your credit card statement, you can have a better understanding of your debt.