You would often have come across this phrase: Outstanding Balance. Usually, it would be seen while checking your credit card or loan statements either online or offline. Sometimes, a call centre agent at your bank or credit union and the Interactive Voice Response (IVR) system will also use the words ‘Outstanding Balance’ when you call for some information.
Lots of people often confuse the two terms in banking and finance. One of these is ‘outstanding balance’, and the other is ‘statement balance.’ Therefore, in this article, I will explain ‘outstanding balance meaning’ in simple words and its effects on your personal finances.
What is an Outstanding Balance?
Basically, outstanding balance means the amount of money you owe to a bank or credit union or any financial institution or any place where you enjoy credit facilities. Usually, an outstanding balance means the amount of money you owe at that specific point of time when you check your account.
In most cases, an outstanding balance is the total sum of money that you owe and have to pay immediately or before a set deadline or is already overdue. This means you have to keep the money ready and pay immediately.
The total outstanding balance includes the amount of money you owe as instalments for buying something, service charges, tax and, of course, interest where applicable. Almost every outstanding balance statement will give you a clear breakup of these amounts and the total.
Users of Outstanding Balance
Now, let’s see who uses the term outstanding balance the most. I have already explained the meaning of this term. Hence, be ready to pay when you come across the term on the website, app or even the printed and mailed statement that you receive.
Here are some of the common users of this phrase:
- Buy now pay later (BNPL) apps
- Credit card issuers such as banks, credit unions and other financial institutions
- Banks and credit unions that offer personal or business loans
- Mortgage companies
- Vehicle or automobile finance providers
- Stores, shops or commercial establishments that give you credit on purchases
- Companies that have credit with suppliers
- Suppliers of raw materials or finished goods
- Distributors, in their statements to retailers
- Any individual or business that has to receive or pay money
The term ‘outstanding balance’ is not unique to credit card or loan providers. Most persons use it casually to signify the amount of money they owe someone in total or in part.
Evil Effects of Outstanding Balance
I don’t wish to scare you. However, whenever you see the phrase ‘outstanding balance’, make sure you pay off quickly. Or, you might have to face some of the evil and undesirable effects of ‘outstanding balance’ on your personal finances.
Delaying or defaulting on paying off the outstanding balance has these evil effects on your personal finances and also your life, in general.
- Poor credit score due to delays or defaults in repayment
- Legal litigations for defaulting on repayment
- Denial of further credit and loan facilities due to default or delay in paying outstanding balance on time
- Delays in achieving your life goals due to financial difficulties
- Inability to get credit cards and BNPL facilities
Surely, these are some evil effects that all of us wish to avoid. Hence, beware of defaults and delays in repaying outstanding balances when you come across one.
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Positive Effects of Outstanding Balance
Since I’ve already spoken about the evil effects of outstanding balance, here are some positive effects, too. These can actually help to improve your personal financial life and, sometimes, lead you to riches too.
- Timely payment means a higher credit score.
- Proper management of outstanding balance brings financial discipline
- An outstanding balance helps you to know your liabilities and prepare to meet them
- Outstanding balance helps us keep check on our spending and budget
- An outstanding balance can be used to step up savings and investments while cutting down on spending
As a matter of fact, almost everyone in the US has some outstanding balance on mortgage, loans, credit cards or even personal borrowings. It’s desirable to have some outstanding balance and repay timely so that we can build a healthy credit score.
Outstanding balances on loans, credit cards, mortgages and others are a part of modern life. It’s nothing really worth worrying about. Instead, use outstanding balance to up your personal finances.