Interest saving balance refers to a set amount that credit cardholders can pay on their outstanding balance each month. Not surprisingly, calculating interest saving balance is of interest to individuals who recently opened a bank account without an SSN or ITIN and are looking to obtain their first US card.
In short, it is the combination of the minimum payment due and any new purchases in the most recent billing period.
In this article, we’ll look at interest-saving balances in comparison to other payment balances. Plus, we’ll also answer several common questions we receive on the topic.
This article is part of our free series on credit card essentials, ranging from how to get a credit card with an ITIN number to answering questions like what increases loan balance.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Interest Saving Balance
- Should I Use the Interest Saving Balance?
- What Is Credit Card Interest?
- Should I Pay Off My Saving Balance as Soon as Possible?
- Frequently Asked Questions
- Ready to Open Accounts with Banks in the USA?
Interest Saving Balance
Interest saving balance refers to the minimum monthly required payment plus any new purchases accumulated during the past billing period. In short, interest saving balance refers to the amount that a cardholder needs to pay in order to avoid any additional interest charges each month.
That said, the cardholder will continue to carry the existing balance on the card, which will continue to incur interest charges. So, while “interest saving balance” may appear as a mechanism to encourage good credit behavior it may result in paying interest over a longer period of time.
There are two alternatives to paying the interest-saving balance: (1) paying the minimum balance and (2) paying the statement balance. If you continue to use the card each month, paying the minimum balance will continue to grow the overall balance of debt owed to the credit card company, to which interest will be applied to. On the other hand, if you pay the statement balance, you will never incur interest as there is no balance on the card for interest to be applied to.
It’s important to understand the type of cards available to you, including secured vs unsecured credit cards, and the payment requirements for each.
Of course, whether you pay the interest-saving balance, the minimum payment, or the outstanding balance, will depend on a wide range of personal factors. Not the least of which is your ability to pay each of these levels. But, other considerations go into deciding what to pay as well, which we will discuss below.
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Should I Use the Interest Saving Balance
Whether you should use the interest saving balance depends on your ability to pay, tolerance for interest payments, and other debt obligations. In other words, if you are able to pay your entire balance instead of incurring interest, it is often best to do so. That said, if you have other outstanding debt that is incurring higher interest than a credit card, it can make sense to pay off those high-interest balances instead.
That said, if you are looking to consolidate your debt and decide which outstanding balances to pay first, you may want to speak with a professional in order to decide which approach will work best for you.
What Is Credit Card Interest?
Credit card interest refers to the percentage that a credit card issuer charges cardholders for borrowing money. However, unlike other forms of credit, credit card interest only applies after an initial billing period has passed. So, if the balance of the credit card (e.g. the money borrowed), is paid before the billing period lapses, no interest is incurred by the card holder.
What Is a Good Credit Card Interest Rate?
Generally speaking, there is no good credit card interest rate. In almost all cases, credit card interest rates are among the highest interest rates on any debt products available in the world. That said, the lowest possible credit card interest rates tend to be between 16% and 18%, depending on which credit card company issues the card and in which country the card is issued.
Should You Pay Off Your Saving Balance as Soon as Possible?
Whether you should pay off your credit card balance as soon as possible or pay your interest saving balance instead will depend on your personal financial situation and objectives. For instance, if you are looking to optimize for the least amount of interest, then paying off your credit card completely could make sense.
If you do decide to pay your interest saving balance instead of the entire credit card balance, here is the process to calculate the amount you need to pay.
Frequently Asked Questions
Below are two of the most common questions that we receive from people looking into an interest saving balance. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
Should I Pay My Statement Balance or Interest Saving Balance?
Whether you should pay your statement balance or interest saving balance ultimately depends on your specific financial objectives. For example, if you are looking to minimize the interest that you pay each month, then you should pay your entire statement balance. On the other hand, if you are looking to avoid increasing the amount of interest you pay each month, you may decide to only pay the interest saving balance.
How Do I Calculate My Interest Savings Balance?
You can calculate your interest savings balance by adding the minimum monthly payment required by your credit card issuer for the billing period and adding any new charges incurred during the most recent billing period. The resulting number is known as the interest saving balance, which essentially means a balance that does not result in your overall credit card balance increasing over the previous month.
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