New Balance

What Is a New Balance?

In consumer finance, the term "new balance" refers to the amount owed by a credit card holder at the end of their billing cycle. The new balance is the sum of the previous balance and the payments made during the billing cycle, as well as any credit, purchases, balance transfers, fees, cash advances, or interest charges.

The new balance is featured prominently on the monthly credit card statement, along with the cardholder's minimum monthly payment.

How New Balances Work

The new balance reflects all of the activity that took place on a credit card during the previous month. If a cardholder wishes to avoid incurring any interest on their card, they should ensure they pay off the new balance in full before the start of the next payment cycle. Otherwise, interest will begin accruing based on the unpaid amount, based on the card's annual percentage rate (APR). 

With APRs often hovering around 20%, credit card debts can grow alarmingly quickly if left unpaid for long. Cardholders should therefore carefully review their monthly statements to ensure they are aware of their new balance. If any unknown or fraudulent charges are detected, they should immediately inform their credit card issuer to ensure that those charges are removed. In order to reduce the risk of further damage, the credit card provider will typically respond by canceling the existing card and issuing a new credit card altogether.

Remaining aware of our credit cards' new balances is especially important considering how prevalent identity theft has become in recent years. Perpetrators of identity theft often use their victims' credit cards to make large purchases. If the victims fail to realize that this has occurred, they may find themselves saddled with credit card debts that they are unable to effectively contest or manage.

Real World Example of a New Balance

Catherine is reviewing her monthly credit card statement, which states that her new balance is $2,000. Reading through the details of her statement, she notes that her previous balance was $1,000, but that it grew to $2,000 based on having made $1,000 in debt repayments alongside $2,000 in new purchases.

Looking over these numbers, Catherine is quite surprised. As a diligent budgeter, she was only expecting to have spent $1,000 in new credit card purchases in the previous month. Confused, she decides to review the transactions listed in her statement to what led to the additional $1,000 of spending.

Sure enough, Catherine discovers several large and unrecognized transactions. Suspecting that she may been the victim of fraud, Catherine contacts her credit card provider and informs them about the seemingly fraudulent transactions. In response, her credit card company agrees to investigate the charges. In the meantime, Catherine is told that her existing card will be discontinued and that a new card will be sent to her in the mail.