Handling credit card bills is one way you can manage your finances. If you use a credit card regularly, knowing your outstanding balance can help you track how much debt you’ve accrued. What, then, is an outstanding balance? You will find out as you read on.
What is an Outstanding Balance?
An outstanding balance is an amount an individual owes on any debt that charges interest, like a credit card. Most often, it is the amount you owe from purchases and other transactions made with your credit card. An outstanding balance also means your current balance.
It is what a person currently owes on a credit card.
It is a figure reflected on your credit card statement, which shows the total unpaid amount. Knowing that you do not pay immediately when using a credit card, this figure shows what you are due to pay by the end of the agreed term, which usually occurs monthly.
What is an Outstanding Balance on a Credit Card?
An outstanding balance, also known as a current balance, refers to the total unpaid amount on your credit card. This includes purchases, balance transfers, cash advances, interest charges, and fees. It serves as a real-time snapshot of your credit card account.
This balance changes every time you use your credit card, even from one minute to the next. For instance, if you charge a $75 dinner to your credit card, this $75 purchase will become part of the outstanding balance once the transaction posts to your account.
Is It Necessary for Me to Pay the Outstanding Balance?
Paying the entire statement balance is a good way to avoid interest charges. To avoid interest and fees, you do not have to pay the entire outstanding balance. Paying the lates statement balance will take care of that.
How to Calculate Your Outstanding Balance
To calculate your available credit, subtract the outstanding balance from your credit limit and add any outstanding charges in your account that haven’t shown up yet.
For example, if your outstanding balance is $10,000 and you have a credit limit of $40,000 and a transaction of $1,000 that hasn’t appeared yet in your statement, you have $2900 available credit ($40,000 – $10,000 – $1,000 = $29,000).
With an outstanding balance, one can easily tell how much he or she has available to spend. This is made possible by subtracting your outstanding balance from your credit limit.
Examples include :
- Purchases
- Cash advances
- Balance transfers
- Interest charges
- Fees
How Do I Find Out My Outstanding Balance on a Credit Card?
Access your credit card account to find your outstanding balance. Most credit card issuers provide access online and through a mobile app.
You can also call the card issuer’s customer service line to get your outstanding balance. Usually, credit cards list the issuer’s customer service phone number on the back of the card.
Do I Have to Pay the Outstanding Balance?
One does not have to pay it up to avoid interest and fees.
It is taken care of when the statement balance is paid. But if the outstanding balance is paid, one can lower his or her credit utilization ratio.
Difference Between Outstanding Balance and Statement Balance
Outstanding balance is a current picture of what you owe, while your statement balance is what you owe at the end of a billing cycle, typically 20-45 days.
It also might be shown as a monthly balance or a new balance. This amount may or may not be the same as the outstanding balance.
The statement balance portrays all purchases, interest charges, fees, and other items accumulated during the most recent monthly billing cycle.
The billing cycle is a specific period between billing statements. So, one billing cycle might run from August 9 (the opening date) to September 8 (the closing date). The billing cycle doesn’t necessarily go from the first to the last day of each month.
Remember that the statement balance remains the same until the credit card issuer sends the next monthly statement. However, the statement balance and outstanding balance may or may not match.
This depends on whether there’s been any activity on your card since the statement balance was computed.
The statement balance and outstanding balance might be different if there has been any activity between monthly statements. The statement balance and outstanding balance might be the same if there has not been any activity between monthly statements.
Outstanding Principal Balance
The outstanding principal balance of a mortgage refers to the total amount needed to pay off the loan in full. This amount depends on how much was borrowed initially, how much has been paid down, and the annual interest rate.
It also means the loan amount without any added interest.
The formula for calculating the outstanding principal balance
B = (PMT/R) x (1 – (1/(1+R)^N)
Outstanding Principal Balance Formula
“B” is the principal balance,
“PMT” is the monthly payment for principal and interest and
“N” is the number of months remaining.
Difference Between Outstanding balance and Principal Balance
A principal balance is the amount of loan a person gets at the beginning, excluding interest, while an outstanding balance is an amount a person is yet to pay.
Difference Between The Outstanding Balance and Remaining Balance.
Let’s say you spent $5000 on your credit card. Then, you log in to your credit card app. It says you have an outstanding balance of $5000.
You don’t have $5000 to pay off that entire outstanding balance — but you can pay $2000. So you send a payment of $2000.
You still owe the credit card issuer $3000. That $3000 is your remaining balance.
The remaining and outstanding balance are just two terms used to discuss the amount you owe your credit card issuer. The remaining balance is the amount you still owe after a payment. An outstanding balance is a total amount you owe (sometimes the same as your remaining balance).
What Is the Difference Between the Outstanding Balance and the Statement Balance?
The difference between your outstanding balance and your statement balance is as follows:
Your statement balance is the amount you owe at the end of a billing cycle (and includes all purchases, interest charges, fees, and other items accrued during the most recent cycle). In contrast, your current balance is the total amount you owe at any given time, which may include any unpaid balances from previous months.
A statement balance may also be displayed as a monthly or new balance. This monetary value may or may not correspond to the outstanding balance.
The billing cycle is the time interval between billing statements. For example, one billing cycle could last from May 9 (the start date) to June 8. (the closing date). The billing cycle does not always run from the first to the last day of the month.
Remember that the statement balance will remain unchanged until the credit card company sends the next monthly statement. On the other hand, the statement balance and outstanding balance may or may not match. It depends on whether your card has been used since the statement balance was last computed.
Why Should You Keep Track of Your Balance?
Keeping track of your credit card balance is critical to maintaining a solid financial position and avoiding debt accumulation. It is critical to review your statements regularly to identify any unnecessary expenses driving up your bill and keeping you within budget. If you find yourself purchasing too many random items on Amazon, seeing them all lined up on your statement will serve as a strong deterrent.
Examining your statement also allows you to identify any fraudulent charges. That way, you can quickly contact your issuer and dispute the charges before you unintentionally pay for them.
Checking your balance can also help you identify any statement credits, such as if you’re expecting a refund and annual fees that may have been applied to your balance.
Does Outstanding Balance Mean Past Due?
No, an outstanding balance doesn’t mean past due. You add to the outstanding balance when you use your credit card during a statement cycle. (Past due refers to a bill you didn’t pay by its due date.) If you have a past-due balance, it’s included in your outstanding balance.
Average Outstanding Balance
The average daily balance is the balance credit card issuers use to determine your daily interest charge. Your average daily balance is the sum of your outstanding balance each day of a statement cycle divided by the number of days in that cycle.
Calculating the Average Outstanding Balance
1. Finding the average outstanding balance is to pinpoint the time frame. In this example, the time frame is from January to February.
2. Gather all the information about the loan. Get the average debt amount at the start and end of a period (the ending balance of a credit account for two periods). In this case, the assumed ending balance for January is $80,000, and the ending balance for February is $100,000.
3. Obtain the average of the ending balance from January and the ending balance for February. For this example, ($80,000 + $100,000) / 2 = $90,000.
4. The average value is divided by the average number of accounts within the loan portfolio. Assuming that the number of accounts within the given period is 8, we get $11,250 ($90,000 / 8).
What if My Outstanding Balance is Negative?
If it appears as a negative account balance, your credit card company owes you money instead of the other way around. This happens when you overpay your outstanding balance or if you’ve had a credit returned to your account.
Is It Advisable To Have a Negative Balance On a Credit Card?
Having a negative balance on a credit card isn’t bad, but it has some points to consider: Negative balances don’t affect credit. Most credit models typically consider negative balances equivalent to a #0 balance. This means a negative balance won’t hurt a credit score
How Do I Find Out My Outstanding Balance?
This is possible through the following means:
- Card issuer’s mobile app
- Accessing your account online
- Calling the card’s customer service line.
How Do I Clear the Outstanding Balance on My Credit Card?
The following are a few ways one can clear outstanding balances from their credit cards
- Make a note of all the debts to be paid.
- Prioritizing.
- Paying the card bill with the least balance.
- Getting a credit card with a low APR.
- Taking a loan to pay off credit card debts.
- Converting outstanding bills to EMIs.
- Paying off your bills regularly.
What Effect Does an Outstanding Balance Have On My Credit Score?
Several factors determine a credit score. The first is your credit utilization. That is the percentage of available credit that you are using. A FICO® Score is 30% based on credit utilization.
Even if you make on-time payments, carrying large credit card balances may lower your credit score. If you apply for new credit, you may scare away creditors. They may regard you as a high-risk customer because you are already utilizing a large portion of your available credit.
Conclusion
In conclusion, an outstanding balance is a technique used by credit issuers to determine the outstanding loan portfolio.
The average outstanding balance is generally calculated daily but can also be calculated on a monthly or an annual basis.
While average outstanding balances are reported to credit reporting agencies to determine borrowers’ credit scores, they cannot be used as part of credit scoring tools.
Oustanding Balance FAQs
Why is my outstanding balance negative?
It means that you owe money to your credit card company rather than the other way around. This typically occurs after you have overpaid your outstanding balance or have had a credit returned to your account.
What does outstanding mean in accounting?
Outstanding money has not yet been paid and is still owed to someone.
What is outstanding payment?
The unpaid balance of the current owing sum is an outstanding payment. It is the interest-bearing balance of a loan, goods, or service purchased from a company on credit. It could also relate to a payment that was made but did not go through for some reason and is not reported as paid.
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