A credit card is such a useful tool but lack of knowledge can be a bigger problem than not paying it off on time. While people will endeavour to avoid bad debt, they can inadvertently leave themselves in a weaker spot due to this lack of knowledge. Today’s Sunday Finance story will explore credit cards once again.

A credit card is an instrument that allows the user to pay for a transaction today, using the bank’s money, and repay it at a later date. Most credit limits will be larger than someone’s monthly salary, which means that they can end up spending more than they earn in a month.

However, if a credit card is used with specific timing in mind it can effectively augment your cash flow and make you put your cash to work. How is this possible? Two little words: billing cycle.

When you get your credit card there are a few things that should be disclosed to you such as the bank’s terms and your obligations, but also what is the billing cycle and associated costs for certain actions. Your billing cycle is simply the period used to record all your transactions. When your billing cycle ends, your current balance or all of your settled transactions become your statement balance. The statement balance is what you are required to pay in full by the due date in order to not be charged any interest.

You will see your statement balance on your monthly credit card statement along with the minimum payment that is required to keep your card in good standing. Paying the minimum payment enables you to continue using your card but it also results in the bank charging you interest on the statement balance. With annualised interest rates ranging from 45-60 per cent, only paying the minimum payment required can result in your credit card becoming an anchor around your life.

That fear of credit card debt is why so many people push themselves to pay off their entire current balance on their credit cards by the end of any billing cycle — just so they don’t owe the bank anything. However, it’s that fear which can create more negative scenarios for credit card users since they’re left with hardly any cash for their daily needs in cases where credit cards can’t be used such as taking transport.

Most banking apps will show you the statement balance for that period which doesn’t change until a new cycle starts over. However, the current balance is always adjusted after transactions settle on the credit card. Thus, when that the statement balance doesn’t change after making payments to the credit card, some people fear that their credit card might become debt and rush to clear off their current balance.

That’s not the case at all. Once your total cumulative payments on a credit card equal or surpass the statement balance before the due date, you aren’t charged interest. In other words, if you have a statement balance of $100 and you pay a combined amount of $100.01 before the stipulated due date, you will not be charged interest. Also, not going over your credit card limit is another way to avoid any additional fees with a credit card.

To alleviate the fears of many young and older credit card users, it’s a good idea to always put your statement balance into your phone’s calendar once the new cycle starts. Every time you make a payment to your credit card, just use your calculator to deduct that payment from the statement balance to see how much is remaining and needs to be paid by the due date. This is just one way you can ensure you don’t overpay on your credit card and can put your cash to work more effectively.

To just give some more context on how using the billing cycle can be advantageous, let’s say your credit card cycle ended on October 10. Any transaction you do between October 10 – November 11 (November 10 is a weekend) will not be due until about December 3. Thus, you can delay some transactions until a new billing cycle to give yourself the time to build up the funds to pay back the bank for your major purchase. Also, the advent of buy now pay later, which is currently offered at National Commercial Bank Jamaica Limited (NCBJ) and Bank of Nova Scotia Jamaica Limited (BNSJ), means that some large transactions can be broken up into smaller pieces to be repaid over three months to as long as 12 months. While this might cost you a little more in interest, if you can put your money to work and generate more cash than the interest, you’re effectively in a better off position.