The most important part of using a credit card is not earning rewards or using benefits — it’s correctly making your payments. When you’re able to make payments on time and can control your debt, you may enjoy a high credit score and access to the top credit cards available. But if you fail to understand how credit card payments work, it can hurt your credit and make it difficult to qualify for all kinds of loans.
Keep reading to learn how credit card payments work, how a credit card payment is calculated, how to make a credit card payment, and more.
How Credit Card Payments Work
A credit card isn’t just a small piece of plastic or metal; it’s a powerful financial instrument and it’s important to understand how credit cards work. Every time you make a charge to your credit card, you are taking out a loan against the line of credit that your card represents. And just like any other loan, you will have to make timely payments or your account will be considered delinquent.
Each credit card account is billed in 12 monthly statements each year. And while the beginning and end of your billing cycles probably won’t correspond with the start and end of each month, your account’s due date will be on the same day of the month, every month. For example, your payment might be due on the 10th of each month.
At the end of your billing cycle, your credit card issuer will total up all of the charges you’ve made to your account, along with any interest and fees incurred. It will also subtract any payments you’ve made during the last billing period, and present you with a statement, either online or through the mail.
Your payment due date will be at least 21 days after the billing period ends, and many cards give you as long as 25 days. At that time, you’ll have the option of making a payment that is at least the minimum amount due. Alternatively, you can choose to avoid credit card interest charges by paying your entire statement balance in full.
Paying in full each month can help you save in interest. With the average credit card interest rate hovering between 21% and 23%, that can quickly add up on top of the unpaid principal you’re carrying over.
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Calculating a Credit Card Payment
There are several factors that contribute to the payment amount that you’ll see on your monthly credit card statement balance:
- First, the card issuer will start with your previous balance and subtract any payments you made during the previous billing statement.
- Then, it will add up all of the charges that you made during the billing payment, and include all of the fees incurred. These fees can include the card’s annual fee, late fees, balance transfer fees, and cash advance fees.
- If you didn’t pay your previous statement’s balance in full, then you’ll also incur interest charges.
By tabulating all of these charges and payments, the card issuer will arrive at your statement balance. In addition to the balance, your credit card statement will also include a minimum payment amount. A card’s minimum payment will be calculated in one of two ways:
- Based on a flat percentage: Some card issuers calculate the minimum payment by using a flat percentage — typically between 1% and 3% — of your total statement balance. So if you have a total statement balance of $2,000, and your card issuer requires a minimum payment of 2%, then your minimum payment will be $40 for that statement period.
- Based on a percentage of your statement balance, plus fees and interest: Other card issuers calculate your minimum payment based on a percentage of your statement balance, plus fees and interest. Suppose your new charges and payments add up to $1,000, and you have interest and fees that add up to another $100. If the card issuer is using this method and charging 1% of your statement balance, not including fees and interest, then your minimum payment will be $110. That’s 1% of the $1,000 balance ($10), not including interest and fees, plus $100 in interest and fees.
With both methods, most card issuers will require you to pay the entire balance if it’s below a certain amount, such as $35.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Are my retirement goals realistic?
The median retirement account balance for all working Americans is $0, and half of those households are over age 55 (not a typo). But it’s not just a problem for the Boomers. Research has also uncovered that 95% of Millennials are not saving enough for retirement. (Also not a typo.)
It’s a bleak picture, to be sure. But when reality hits hard, motivation can follow. And no one wants retirement to just become one of those things that our parents and grandparents used to enjoy, back in the day.
On average, Americans spend 20 years in retirement. If you earn $75,000 a year when you retire and want to keep the same salary, you’ll need a total of $1.5 million squirreled away.
This is the part where many people might utter the word “impossible.” But if you start saving for retirement now, and make your retirement contributions just as mandatory as your electric bill, that number can start to look a little less intimidating.
In fact, just using a retirement calculator can put you in a better position than many Americans — fewer than half of them have done the math. And once you have your own enormous number, it can get easier to break it down into smaller, more attainable goals along the way.
To be sure, though, the road to retirement is paved with homework and sacrifice. It’s estimated people need 70% to 90% of their pre-retirement income to maintain the same standard of living after they stop working.
So perhaps more than any other financial decision you’ll make, reaching personal retirement goals takes diligence, preparation, planning for the “what if’s” and lots of willpower.
It may seem overwhelming, but it can help to start by determining your retirement objectives. Then you can find your own personal way to crush them. Everyone’s financial situation is different, and this plan is not the only solution out there, but here is one possible way you might go about determining your goals.
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One step you can take to determine your future is to get a solid picture of your present — somewhat like a personal audit. A careful inventory of your current expenses, income, taxes and savings can give you an honest picture of where you are, as well as a realistic look at where your money is going each month.
Once you’ve determined your day-to-day financial picture, you can create a list of any current retirement savings you already have, such as 401(k) accounts, IRAs, or high-yield savings accounts. Total up that number, because you’ll be able to subtract it from your goal.
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A retirement calculator can help you figure out your overall, 20-year lump sum goal by working with variables such as your current age, salary and savings, your desired retirement age and how much you save per year.
Here’s where you can change up the numbers and consider several scenarios. If you were to retire at 67, for example, how much money will you need? What would happen if you were able to up your yearly savings by just 3%? You might even calculate the amount of money you’d need to save to retire early.
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Take a deep breath. Then plan on.
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One possibly helpful way to tackle anything large is to break it down into digestible chunks. To do this, you could subtract your current age from your intended retirement age, then divide that number by the total. That’s your yearly goal. If it’s still overwhelming, you might divide that number by 12 for your monthly goal. Go as far as you need to make it palatable — those “for as little as 3 dollars a day” commercials make it sound easy, right?
For example, if your total number is $800,000 and you’re 30 years from retirement, that breaks down to around $75 a day. But that doesn’t mean you have to put that much into the bank by yourself. A next step you could take is finding the retirement savings plans that will do the most to grow your money.
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With the drastic decline in the traditional, company-provided pension and the uncertain future of Social Security, a number of different individual retirement savings plans, each with specific benefits, have stepped in to take their place.
If your employer offers a 401(k) matching plan, one of the easiest ways to grow your retirement nest egg is to contribute the max amount of money each paycheck that your employer is willing to match.
The contributions are automatically deducted from your paycheck pre-tax, and since you never see the money, it can be much easier to just pretend like it was never there to begin with.
For the self-employed, or for diversification, traditional or Roth IRAs are also specifically designed to help your savings grow.
The biggest advantages of 401(k) and IRA plans are their potential tax savings. However, they can come with yearly contribution limits that don’t mesh with your retirement objectives.
In this case, a general investment account is another possible consideration for growing your wealth. While it likely doesn’t come with tax advantages, it doesn’t come with contribution limits, either.
If investing in the market leaves you feeling wary, or you don’t like the idea of not having access to your money until you reach a certain age, another option to consider is a high-yield savings account.
It’s a cash-based account that has as much flexibility as a regular checking or savings account, but instead of the paltry 0.09% interest offered by some traditional banks, your money can potentially earn 2% or more.
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You’ve calculated your retirement goal. You’ve determined a plan to reach it. And now it’s time for arguably the hardest part — sticking to the plan.
For as many investment or retirement accounts as possible, you might consider setting up automatic contributions to withdraw every payday. The more you can automate, the less you’ll be tempted to move things around.
Learn more:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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