It’s nice spending money that isn’t yours, because in the short term it feels like you didn’t really lose anything but you gained everything. When budgeting you must include purchases made on your credit card because you will have to pay them off in 30 days (sometimes 28) depending on your statement cycle. In this chapter I will show you how to use your credit card the right way so you can avoid interest and maximize your borrowing potential.

Differences between a “Payment Due Date” and “Statement Date”

Payment due date is a very important date because this is the day your creditor is expecting repayment. Usually they’ll be generous and only require a minimum payment. I say generous because if you only do the minimum payment, they will charge interest on your remaining statement balance.

The Statement date is the day your statement resets and is reported to the credit bureaus. This day is usually 2 to 3 days after your payment date, but it’s always good to check for this date on your credit card account. If you have a revolving balance it will be reported to the bureaus and affect your credit score. It’s normal to have a balance reported because this is what you spent this month. As long as you pay your “Statement Balance” in full you will avoid interest charges.

Let’s use this as an example.
Opening/Closing Date 04/26/23 – 05/25/23*
Due date: 06/22/23
Balance: $204
Statement Balance: $103
Minimum Payment: $25
*credit card companies will all call statement date differently keep an eye out for hints in this example (Chase) calls it Closing Date which is 5/25

Assuming no further purchases were made, on June 22nd the statement balance of $103 is paid. There is a balance remaining of $101. June 25th comes, the statement resets $101 gets reported to the credit bureau and no interest is charged because the whole statement balance is paid off.

Turning it into this
Opening/Closing Date 04/26/23 – 05/25/23
Due date: 06/22/23
Balance: $101
Remaining Statement Balance: $0
Minimum Payment: $0

Now next month’s statement looks like this
Opening/Closing Date 05/26/23 – 06/25/23
Due date: 07/22/23
Balance: $101
Statement Balance: $101
Minimum Payment: $25

Differences between a “Balance” and a “Statement Balance”

In the above example let’s say a purchase was made after June 25th the balance would increase and this money would be owed in August. This is because the statement balance due on July 22nd is already determined and reported as $101 (the money spent in June). Theoretically a purchase of $1,000 could be added and will not be due until the next statement due date. Which in this example would be August.

Opening/Closing Date 05/26/23 – 06/25/23
Due date: 07/22/23
Balance: $1,101
Statement Balance: $101
Minimum Payment: $25

So now the Balance increased to $1,101 and to avoid any interest a payment of $101 will be due on July 22nd. Keep in mind that spending more than you can afford can put you behind on payments, this is why it’s good to budget. You can also use these dates to your advantage and get a little extra time to pay off big purchases. Also keep in mind that in this theoretical example a $1,000 balance will be reported to the credit bureaus which can temporarily bring down your credit score.

If you’re really keen on your credit score, paying off your whole balance as opposed to your statement balance can be beneficial. Just know that it is not required to avoid interest, although if you have a small credit line when you have a balance it makes it seem like you max out your credit cards. In this case as long as your balance is $0 before the statement date you will avoid both interest and help your credit score.

Have a good budget, pay off your statement balance in full and move on to the next step of earning those rewards!

Earning Points

Once you master how to pay off your credit card the right way and master your borrowing potential you can start thinking about what cards are good for you to earn points with. When you shop with a card that has a 2% cash back, you’re basically earning a 2% discount on all your purchases. This will only work if you pay off your cards without paying interest because you will lose more in interest than the rewards the card has to offer. The credit card world is full of wonders, but just like the ocean is big you can drown if you don’t come prepared.

Thank you for reading and see you next week,
– Pablo