We’re often surprised by our credit card statements, and not just because of how much we’re charging. The balance amount always seems to be a number that we wouldn’t have guessed, and some purchases that we expect to see aren’t on the statement, and some that we don’t expect to see are listed. This is because of timing and the credit card billing cycle.

When we receive our credit card statement, the bank or Credit Card Company has taken a snap-shot of our account. The amounts are frozen in time on the statement date when the snap shot was taken, but we’re actively using the card (account). This is important because the timing of payments and purchases change the balance throughout the billing cycle. The statement is one of those pieces of information that is somewhat obsolete the moment its’ received. We have all had a purchase show up on our statement sooner than we expected, or experienced a delay in billing. This can make managing our finances difficult from time to time.

As an example, if I receive my statement dated June 1st, and my credit card balance is $1,000.00, this is a snap-shot in time of the account. It shows the balance on that date (June 1^st), a list of transactions made during the period up until that date, the payment that I made last month, any interest charged, a minimum payment due, and the date that my payment is due. The statement shows how the account looked on June 1st from the credit card company’s perspective. If I made a purchase the week before June 1st from a company that doesn’t bill until they ship the merchandise, and they ship it June 2^nd, then it would not appear on the statement or affect the account balance on the statement that I received.

For the example, let’s say that the Payment Due Date on this account is June 15^th. This is when my payment on the account needs to be received, but it’s important to note that from June 1^st (the day of the snap-shot) until June 15^th, any charges that I make are affecting the account balance, and I wouldn’t see these transactions unless I looked at the account online. Let’s say that the day I decide to mail the payment (yes, I still mail some of them) is June 9th.

I mail a payment on June 9^th so that it’s received by the 15^th (the Payment Due Date), and I decide to pay half the balance and send $500.00 (on my statement the balance was $1,000.00). Over a week has gone by since the account snap-shot (June 1^st), and I’ve charged gas for the car, a dinner with family, and some clothing, all of which total about $225.00. What does my account look like now? It depends…

It was $1,000.00 on my statement, I’m mailing a $500.00 payment (but they haven’t received it yet), and I’ve made some purchases ($225.00). The account balance will be $1,225.00 if all of the charges have hit the account.

So, the $500.00 payment that I’m sending (thinking I’m paying half the balance) will be applied to the new $1,225.00 balance when the company receives my payment. But wait, my billing cycle ends on the last day of the month. The snap-shot was taken on the 1^st and the next one won’t be taken until the first day in July. It’s only the second week in June. There will be more changes to the account before the next snap-shot.

Time goes by and it’s now June 20^th and again I need gas for the car, and some toner for my home printer. I charge another $198.00, and the month (my billing cycle) isn’t over yet. It ends on July 1^st. In the next ten days (before July 1^st) I end up charging another $80.00, which brings my total charges for the month (the billing cycle) to $503.00. How do things look now?

In July, I get a new statement (snap-shot in time) dated July 1st.

Starting Balance:                            $1,000.00
Charges for the month:                    $503.00
Payment Received:                            $500.00
Interest Charged:                                 $10.00         (12%)
New Balance:                                  $1,013.00

Wow, I thought that I paid half of my credit card balance. I’ve forgotten that the snap-shot balance is always in the past, and that I’m adding to it as I charge. My payment in this case doesn’t really put a dent in the balance. In fact I’m losing ground. The new balance is higher than last month’s.

When I receive my statement, I’m making a payment based on the balance shown, but setting a specific payment amount based on what I really charge on the card would be much better. Using the scenario above, if I budget a $650.00 payment each month for this credit card, and I hold my charging to $500.00 each month, then I will eventually eliminate the balance.

There are two things that will make this plan work. First, the maximum that I charge for the month must be the budgeted amount (in this case $500.00). Second, I have to maintain the $650.00 payment each month. Then regardless of the billing cycle, my payment will keep pace with my monthly charging, and at the end of seven months when the balance is eliminated, I can lower the monthly payment to $500.00 (the budgeted charging amount). This will free up $150.00 to apply to another area of my finances.

We can eliminate some financial surprises by understanding the cycles of banking and credit cards, and including them in our financial plans. There will always be months when things don’t quite add up, but we’ll know what’s going on and how to get things back in line with our financial plans.