Outstanding Balance: Meaning and How to Calculate It

Outstanding balance
Outstanding balance

Handling credit card bills is one way you can manage your personal finances. If you use a credit card regularly, knowing your outstanding balance can help you keep track of 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 that is 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 kind of 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.

How to Calculate Your Outstanding Balance

To calculate your available credit, subtract the outstanding balance from your credit limit and add any outstanding charges that haven’t shown up yet in your account.

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 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 :

  1. Purchases
  2. Cash advances
  3. Balance transfers
  4. Interest charges
  5. 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 phone 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 stay clear of interest and fees. 

It is taken care of when the statement balance is paid. But if the entire 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, which is 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 of the purchases, interest charges, fees, and other items that accumulated during the most recent monthly billing cycle.

The billing cycle is a specific time 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 day to the last day of each month.

Bear in mind 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 simply refers to the total amount of money that is needed to pay off the loan in full. This amount depends on how much was originally borrowed, how much has been paid down, and what the annual interest rate is.

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 the 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 balance and outstanding balance are just two terms used to talk about 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 (which is sometimes the same as your remaining balance).

Does Outstanding Balance Mean Past Due?

No, outstanding balance doesn’t mean past due. As you use your credit card during a statement cycle, you add to the outstanding balance. (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, this means that your credit card company owes you money instead of the other way around. Actually, 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 a bad thing, 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

Does Outstanding Balance Mean Past Due?

Having an outstanding balance doesn’t mean it’s past due. The more you use your credit card during a statement cycle, you add to the outstanding balance. (Past due simply means a bill you didn’t pay by its due date.) A past due balance is usually included in your outstanding balance.

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 

  1. Make a note of all the debts to be paid. 
  2. Prioritizing.
  3. Paying the card bill with the least balance.
  4. Getting a credit card with a low APR.
  5. Taking a loan to pay off credit card debts.
  6. Converting outstanding bills to EMIs. 
  7. Paying off your bills on a regular basis.

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 sum owing is referred to as an outstanding payment. It is the interest-bearing balance of a loan or 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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