One challenging aspect of personal finance and taking charge of your money is that many of your bills operate on different billing cycles, rarely coinciding with a monthly calendar. My guess is that they do this intentionally to get you out of sync with your paychecks, which usually come twice a month.
When we are used to thinking of our income in calendar month increments, and our bills come at strange times like the 14th of the month, we can get off balance.
For more than a year I was ahead of our credit card statements. That means when it came time to make a payment, I was paying early, and I was paying everything that was charged in that calendar month.
I always paid the full statement balance, however, to avoid accruing interest charges.
This changed when I realized that I would have to amp up my savings for our Croatia Trip after Christmas, and that I could take advantage of the “float” period to get ahead of our pending. I liken this to a small business seeking to push their accounts payable out as far as possible, while collecting their accounts receivable as soon as possible.
Before we get too far along, I want to offer my thoughts on credit card usage. If you have a bunch of credit card debt and you are just getting started with your debt payoff plan, I recommend that you stop using credit cards and switch to cash. That’s what we did for over a year.
Once you have a good track record of sticking to your plan and spending less than you earn, you could reintroduce credit cards to take advantage of rewards points, but ONLY if you can afford to pay off the statement balance each month and avoid accruing new debt.
Despite the temptations of debt with credit cards, responsible users (even those still in debt) can get great mileage by taking advantage of special promos like 5% cash back on groceries. The identity theft protections and special perks like no foreign transaction fees can make credit cards a smart choice for large expenses or travel costs.
So How Do You Get Ahead of Your Credit Card Statement?
Simply put, you need one month with a bit of extra money to pay ahead. If you are living paycheck to paycheck, maybe April or May would be a good time to do this, when many of us are flush with income tax returns.
How does it work?
Let’s take my Chase Sapphire Preferred card, for example, The billing cycle for this card is the 15th of the month through the 14th of the next month. That means when I received my bill in mid-August, I am responsible for charges accrued from mid-July through mid-August. The bill is due on September 11, meaning I have almost an entire month before a payment is due on these purchases. I typically pay this bill at the end of the month, or about two weeks early.
To “get ahead” of my credit card statement, I will basically need to pay 1.5 months of expenses on my next bill. This is where the “extra” money comes in.
When I log in to Chase, I will be presented with a few payment options, such as paying the minimum balance due (around $30), paying the statement balance (charges accrued during last billing cycle), or total balance (statement balance plus any charges accrued since the statement closing.)
If I choose to pay the total balance of 1.5 months, the next time I go to pay my card bill (and each month thereafter) I’ll actually be paying at the end of the month only the charges that I made during that month. This makes it easier to get your mind wrapped around your spending, and to put an end to the “buy now pay later” feel of a credit card.
Asking Your Credit Card Company to Change Your Billing Cycle
Another option is to call your credit card companies and ask them to change your billing cycle so it coincides with the calendar month.
In prepping this post, I called Chase and asked about this. Doing so, however, would change my payment due date for all future statements to somewhere around the 25th of the month, which I decided would mess with my brain too much. I like paying about two weeks early, and I decided that I prefer the early payment date to coincide with the end of the month, rather than mid-month.
So, once I take one month to “get ahead” of my statement, I will continue to pay at the end of the month, only for purchases made in that month. I will also maintain the flexibility to have a near two-week buffer to make my payment, in case something unexpected happens.
Just Do It
So whether you artificially get ahead of your credit card statement or ask your lenders to make the change for you, the most important part is that you are getting in the habit of paying at the end of the month for purchases you made during that month.
While a month-straddling billing cycle is technically okay, it causes us to be out of sync with our income and perpetuates a “pay later” mindset that can be damaging to your debt payoff progress.
This isn't an earth-shattering piece of personal finance advice, but it can help you stay on track and better understand where your money is going.