What is an Outstanding Balance? Is Outstanding Balance the Same as Balance?

What is an Outstanding Balance?

Understanding your outstanding balance is crucial when managing your finances, particularly with credit cards. This term refers to the total amount you owe on any debt that accrues interest, such as a credit card.

Essentially, it encompasses the financial obligations arising from your credit card activities, including purchases, cash advances, balance transfers, interest charges, and fees. Your outstanding balance is commonly known as your current balance and serves as a key indicator of your financial standing with the credit card issuer.

Credit card issuers set specific credit limits for their users, defining the maximum amount one can spend. Your outstanding balance plays a vital role in determining how much credit or available funds you have left. To calculate your remaining credit, subtract the outstanding balance from your credit limit.

It's essential to consider all charges, including those that may not yet be reflected in your credit card account. Effectively managing your outstanding balance is crucial for maintaining a healthy credit profile and ensuring you stay within your credit limit.

Is Outstanding Balance the Same as the Statement Balance?

The outstanding balance and the statement balance, although related, are not always the same. The outstanding balance represents the total amount owed on a credit card, encompassing purchases, fees, transfers, and cash advances. On the other hand, the statement balance specifically reflects the debt accumulated since the last billing cycle's closure, typically covering around 30 days.

When reviewing your monthly credit card statement, both balances are usually presented. While they might coincide if no further transactions occur after the statement's closing date, any subsequent card usage or payments may lead to disparities between the two balances. To calculate the statement balance, one can sum up all charges and deductions from the billing period, such as purchases and payments.

Any transactions made after the statement's closing date won't be reflected in the statement balance but will contribute to the outstanding balance. Hence, monitoring both balances is crucial for a comprehensive understanding of your credit card debt.

How to Check Outstanding Credit Card Balance? 

These approaches grant you easy access to your outstanding credit card balance, allowing you to stay informed about your financial obligations. To determine your outstanding credit card balance, utilize one of these three convenient methods:

Check Your Statement

The simplest way is to refer to your monthly credit card and Bank Statement. This document details your recent transactions, fees, and the total outstanding balance since the last billing cycle.

Log In to Your Account

Access your credit card account online through the issuer's website or mobile app. Most credit card companies offer user-friendly platforms where you can log in and view your current outstanding balance, recent transactions, and additional account details.

Check Your Credit Report

While not an instance method, Updating Your Credit Report can provide a comprehensive overview of your credit history, including outstanding balances on credit cards. Obtain your credit report from major credit bureaus, such as Equifax, Experian, or TransUnion, and analyze the credit card section for the information you seek.

MarketsHost invites you to uncover a plenty of articles, guides, and analyses that provide invaluable insights into the realm of Finance.

What is the Difference Between Outstanding Balance and Remaining Balance?

While the outstanding balance encapsulates the entire financial obligation, the remaining balance reflects the residual amount after a partial payment, providing insight into the ongoing repayment journey. Both terms are integral to effective financial management and debt repayment strategies. The key distinction between the terms "Outstanding Balance" and "Remaining Balance" lies in their specific contexts within financial management.

Outstanding Balance

The "Outstanding Balance" represents the total amount owed on a financial account, encompassing purchases, cash advances, interest charges, and fees. It serves as a comprehensive indicator of the overall debt and influences the available credit limit.

Remaining Balance

The "Remaining Balance" is the amount left after a partial payment is applied to the outstanding balance. It reflects the portion yet to be settled, aiding individuals in tracking their progress in repaying the debt. Both terms are crucial in effective financial management and debt repayment.

Why Should You Pay the Outstanding Balance?

Paying the outstanding principal balance is a wise financial move, especially if you have the means. Clearing the Current Balance not only eliminates the risk of incurring interest charges but also resets your credit card balance to zero, a benefit not always achieved by paying the statement balance. Credit bureaus favor low utilization ratios, typically advising to keep it below 30%, and paying the outstanding balance ensures a utilization ratio of 0% for that specific credit account.

While settling the full statement balance also avoids interest, it triggers a grace period that allows you to defer payment for new charges until the next billing cycle's due date. It's essential to note that some issuers may not provide grace periods or might temporarily suspend this perk for cardholders who fail to pay their balances by the due date. Choosing to pay the outstanding balance aligns with financial prudence and helps maintain a healthy credit profile.

How to Calculate Average Outstanding Balance?

Calculating the average outstanding balance, especially for revolving credit like credit cards or lines of credit, involves adding all the daily outstanding balances throughout a specific period, usually a month. This sum is then divided by the number of days in the period to obtain the average outstanding balance for that duration. In the case of loans with monthly payments, such as mortgages, lenders may opt for the arithmetic mean of the starting and ending balance for a statement cycle.

Let's take an example for a credit card with different daily balances:

Day 1: $1,200

Day 2: $1,000

...

Day 30: $800

Adding up these daily balances gives us a total of $28,000. If we divide this sum by the number of days in the month (30), the average outstanding balance for the month would be $933.33 (rounded to two decimal places).

For a loan with monthly payments:

Starting balance: $80,000

Ending balance after a payment on the 30th day: $78,000

The average outstanding balance for that period would be ($80,000 - $78,000) / 2, resulting in an average of $79,000. This illustrates how lenders calculate the average outstanding balance for loans with monthly payments.

How Does an Outstanding Balance Affect My Credit Score?

Managing your outstanding balance wisely and ensuring it stays within this recommended utilization ratio can positively affect your credit score. On the other hand, consistently carrying a high outstanding balance relative to your credit limit can have a negative impact on your credit score, as it may signal financial strain and a higher credit risk to lenders. Regularly monitoring and strategically paying down your outstanding balance can contribute to a healthier credit profile over time.