Current balance vs. payoff amount

If you have any kind of debt, you probably know what a “current balance” is. It is the amount you owe the lender as of the date of the statement. However, what is not so obvious is the fact that the current balance is not necessarily the amount you owe. The difference between your balance and the payoff amount is crucial when you are ready to pay off your debts.

Current balance means, as I noted, the amount you owe as of the date of the statement. As of the day after the statement, you owe more. In other words, if you are trying to pay off a credit card, and the statement says your balance is $514, you may not be able to bring your balance to zero by writing a check for $514. Instead, you would need to contact the lender to find out your “payoff amount.” The payoff amount is just a more-current balance number. But if you are trying to eliminate a debt, you need to pay it all off. If you just pay the balance, you may be left with a few cents or dollars left in the account. Over time, that could become more than an irritation; it could become a significant obstacle to eliminating your debt.

So before you pay off a debt, call the lender to find out exactly how much you owe and how you can pay it off in full.