Reducing your credit card debt doesn't have to be complicated — Here's what you need to know to get on the right track

What is the minimum payment on a credit card, compared to a statement vs. current balance?

The first step is understanding the difference between the various balances displayed on your bank’s website or statement:

• Minimum balance: This is the payment needed to be current on that bill’s due date. The credit card issuer will have detailed terms for calculating that amount, but it is typically 1% or 2% of the credit card balance or a fixed payment plus interest and fees. The minimum fee must be paid if you don’t want the issuer to report your bill as a missed or late payment. Paying the minimum balance only will lengthen the amount of time it takes to pay off your credit card, and you will be charged the high-interest rate outlined on your credit card agreement.
• Statement balance: This balance is what your credit card closed at the billing cycle. Every credit card has a close date, and the statement balance includes all unpaid transactions as of the monthly date. To avoid paying any interest, you must pay the entire statement balance. This ensures that you are using the credit card interest-free and can maximize your earning potential with rewards.
• Current balance: This amount includes all unpaid transactions on your account today. It does not include pending transactions that have not been posted to your account. This will be higher than the statement balance as the amount includes transactions that will be posted to your next statement. However, some choose to proactively pay the current balance monthly. This strategy goes above and beyond paying the statement balance and also maintains your credit card interest-free.

Read More: Find the right credit card for your needs

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How much should you pay on your credit card bill?

You should aim to pay the statement balance on your credit card in full every month. This ensures that you aren’t charged any interest and that an on-time payment is recorded on your credit report and score. If you want to go above and beyond, paying the full balance will minimize the amount posted on the next statement date.

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Why should I pay the minimum payment on my credit card?

At the very least, a minimum balance should be paid for the statement to not be sent to credit agencies as missed or late, though the posted interest rate will apply to the balance. Either way, it’s recommended that preauthorized payments be set up from your chequing account so you avoid missing any payments.

Read More: Want to get out of debt faster? Consider these 7 strategies for paying down credit card debt

What happens if I don't pay the minimum payment on my credit card?

Credit issuers report statement balances and status to agencies like TransUnion and Equifax monthly. If you don’t pay the minimum payment on a credit, statements are reported as missed and late, impacting your credit score significantly. You also risk an increase in your interest rate, being disqualified for promotional offers and rates, having your account closed and being ineligible for future attractive credit cards and offers.

What happens if I miss my credit card payment?

Missing your credit card payment will result in an eventual late repayment. This balance will incur interest, which will differ from the type of transaction. Purchases will have a lower interest rate than a cash advance, and the credit card issuer’s terms will determine how minimum payments will be applied to your total balance.

Strategies to reduce your credit card debt

Credit card consolidation can help reduce your credit card payments. Many financial institutions offer this service, which involves taking out a new loan, usually at a lower rate. If qualified, this is seen in the form of a personal line of credit or home equity line of credit, and the rate is lower than a hefty credit card interest rate. The terms of the new loan agreement apply, but you pay a lesser interest rate to the lender.

The other strategy is to use a balance transfer credit card with a lower or promotional interest rate. New credit cards often promote a 0% or introductory rate to transfer your balances for a period of time. This allows you to pay your balance down with lower or no interest rates. The rate will expire, however, then the balance will incur interest at the card's new rate, which may be higher than your existing card's rate.

It's worth noting that cancelling your older credit card can affect your average credit card age, which is a factor in determining your credit score. On the other hand, transferring a balance often comes with a transfer fee, which should be taken into account when deciding whether to proceed with a balance transfer.

Read More: Should you take out a personal loan to pay off credit card debt?

Bottom line

You’re not the only one if you’re struggling with maintaining regular payments on your credit card.

While these strategies will make a small impact on your balance, interest rates and what is reported to credit bureaus combined, they add up to a big difference which can ultimately bring you out of credit card debt.

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