Outstanding Amount on a Credit Card: Meaning and Calculation

It is the total money you owe to the bank or credit card company. The outstanding amount on a credit card includes unpaid purchases, interest charges, fees, EMIs, interest on a cash advance and other transactions that remain unpaid. 

 

This amount increases when you make new purchases or take cash advances. You have to pay it by the due date to avoid interest charges and late fees, which will be added if the balance remains unpaid.

Understanding how the outstanding amount and the statement balance differ helps you manage your payments and use your card more effectively. Here is a simple breakdown based on key parameters:

Your credit card balance changes based on your spending and repayments. You can calculate the credit card’s outstanding amount in a simple way. It involves adding all recent credit card transactions and subtracting any payments you have made. Here is how you can do it in a step-by-step manner:

1. Start with your previous balance from the last billing cycle

2. Add all new purchases made using your credit card

3. Include any cash advances or balance transfers

4. Add interest charges, late fees, and other applicable charges

5. Subtract payments made and any refunds received to get the final amount

 

Calculation:

 

Say you have a balance of ₹8,000. During the month, you spent ₹4,500 on new purchases and repaid ₹2,000. Additionally, you incurred ₹150 in interest and ₹50 in fees.

 

Now, here is how your current outstanding balance is calculated:

• Outstanding Balance = Starting Balance + Purchases - Payments + Interest + Fees

• Outstanding Balance = ₹8,000 + ₹4,500 - ₹2,000  + ₹150 + ₹50

• Outstanding Balance = ₹10,700

 

This way, your current outstanding balance is ₹10,700.

Monitoring your current outstanding balance is key to managing your finances effectively. It helps prevent overspending, avoids unnecessary fees, and supports maintaining a healthy credit score. Here is why is it crucial:

• Prevents Overspending: Regular tracking ensures you stay within your credit limit, avoiding over-limit fees and financial stress

• Better Expense Planning: Knowing your outstanding amount allows you to plan your spending wisely and stick to your budget

• Avoids Late Fees and Interest: By keeping track of your balance, you can make timely payments and avoid costly late fees and high-interest charges

• Helps Maintain a Good Credit Score: Maintaining a low balance and paying on time positively impacts your credit score

• Reduces Unnecessary Debt: Staying informed on what you owe helps avoid piling up debt and keeps your financial health in check

• Improves Financial Discipline: Regularly checking your balance fosters good financial habits and encourages responsible credit usage

Managing your credit card balance effectively can help you avoid debt, reduce interest charges, and maintain a strong credit score. Here are some straightforward tips to keep your balance under control:

• Pay More Than the Minimum Due: Paying more than the minimum due reduces your balance faster and lowers the interest you pay

• Tackle High-interest Balances First: Prioritise clearing balances of cards with the highest interest rates to reduce your financial burden more quickly

• Enable Payment Reminders: Set alerts or reminders to stay on top of your due dates and avoid missing any payments

• Pause New Credit Card Spending: Refrain from making new purchases on your card while focusing on clearing your current balance

• Pay Through EMIs: If paying your bill in full is difficult, contact your bank to convert your outstanding balance into manageable EMIs

• Monitor Your Expenses: Track your card activity closely to control your spending and prevent unnecessary charges