When does interest start building on credit card charge?
April 5, 2023 3:51 PM Subscribe
I recently paid off a high interest (30%) credit card and now each time I use it, I immediately pay off the entire balance. I pay back the card the same day online, and keep the balance at 0. I was surprised to find a $100 interest charge emerge from a zero balance.
I thought that if I paid the card immediately or almost immediately, it would not charge interest. Since paying it off was a new practice for me, as I'd always carried balances and interest before, I assumed I could use it for convenience, paying back right away without accruing interest charges. Did I just assume something ridiculously optimistic and wrong about credit cards?
I thought that if I paid the card immediately or almost immediately, it would not charge interest. Since paying it off was a new practice for me, as I'd always carried balances and interest before, I assumed I could use it for convenience, paying back right away without accruing interest charges. Did I just assume something ridiculously optimistic and wrong about credit cards?
Check the terms and conditions of the card - there may be a minimum monthly charge attached?
posted by dg at 3:59 PM on April 5, 2023 [1 favorite]
posted by dg at 3:59 PM on April 5, 2023 [1 favorite]
You don't have to pay it off immediately, you can pay it off before the balance is due. $100 sounds like a fee, not an interest charge.
posted by os tuberoes at 4:08 PM on April 5, 2023 [7 favorites]
posted by os tuberoes at 4:08 PM on April 5, 2023 [7 favorites]
To keep from paying interest, you pay the bill once a month, after the statement closes, before the due date. It may take 1-2 months to get this sorted from the last time you did multiple payments.
The multiple partial payments trigger the interest. I am not clear on the details how.
posted by TheAdamist at 4:09 PM on April 5, 2023 [1 favorite]
The multiple partial payments trigger the interest. I am not clear on the details how.
posted by TheAdamist at 4:09 PM on April 5, 2023 [1 favorite]
The term you want to look for in your account agreement is "grace period": this is the amount of time between when you make the charge and when interest starts accruing.
There is usually no grace period for cash advances (meaning that interest on a cash advance starts accruing immediately). Could the charge be because you took out a cash advance?
Finally, if you have the funds to pay off the purchases right away, you might consider using a debit card instead of the credit card until you figure out what triggered that interest charge (unless there's a reason to use the credit card, like insurance coverage or you're booking a hotel room or something).
posted by heatherlogan at 4:20 PM on April 5, 2023 [1 favorite]
There is usually no grace period for cash advances (meaning that interest on a cash advance starts accruing immediately). Could the charge be because you took out a cash advance?
Finally, if you have the funds to pay off the purchases right away, you might consider using a debit card instead of the credit card until you figure out what triggered that interest charge (unless there's a reason to use the credit card, like insurance coverage or you're booking a hotel room or something).
posted by heatherlogan at 4:20 PM on April 5, 2023 [1 favorite]
Did you just pay off the lingering credit card balance, like a few weeks ago? It's likely that you're just seeing a final interest charge hanging over from that.
Going forward, just pay off the full statement balance by the due date, and you won't pay any interest (excepting cash advances). Be aware that constantly paying off every charge every day might actually look suspicious to your card issuer, and conceivably could get your card cancelled.
posted by kickingtheground at 4:46 PM on April 5, 2023 [8 favorites]
Going forward, just pay off the full statement balance by the due date, and you won't pay any interest (excepting cash advances). Be aware that constantly paying off every charge every day might actually look suspicious to your card issuer, and conceivably could get your card cancelled.
posted by kickingtheground at 4:46 PM on April 5, 2023 [8 favorites]
Did you just pay it off? The grace period only applies after there's been a zero balance (so, in practice, month 2 after you pay everything off). However, $100 is a strange number for interest. Are you sure there wasn't any sort of annual fee?
posted by praemunire at 4:48 PM on April 5, 2023 [3 favorites]
posted by praemunire at 4:48 PM on April 5, 2023 [3 favorites]
(But, generally, yes: if you pay off your balance timely and in full monthly, there shouldn't be any interest charges.)
posted by praemunire at 4:49 PM on April 5, 2023
posted by praemunire at 4:49 PM on April 5, 2023
Some cards will charge you interest based on your average balance over a certain time frame.
posted by soelo at 4:51 PM on April 5, 2023
posted by soelo at 4:51 PM on April 5, 2023
Lots of good advice above. I have $0.02 to add, but I'll just waive it because your credit card would probably charge another $100 to pay that (too soon? sorry if too soon.)
@debit cards: for personal finance reasons, it's totally reasonable to only buy stuff you have the funds for right now. That is to say, don't use your credit card to finance stuff you can't afford unless you need it right now and don't have a better purchasing option. But for fraud safety reasons, it is generally a better bet to put the purchase on a credit card and then pay the balance before the due date with your cash reserves, rather than using a debit card to pay. "With credit card fraud, the {bank}'s money is at stake. With debit fraud, your money has been stolen."
@timing of payments: if you pay your balance down to $0 every month when you get your bill (or schedule an auto-payment to do it for you), you should never get a finance charge. But I had a store card years ago where the terms were "pay the balance within 18 months, and you'll owe 0% interest." BUT as the great prophet said "you got it buddy the large print giveth and the small print taketh away"----I scheduled payments for the 1st business day of every month for 18 months to pay off the balance, before I ever saw a statement. When the first statement came, I patted myself on my back for my cleverness. When the second statement came, it had an interest charge, because my automated payment has processed before the statement printed, and hence "didn't count" towards that statement. Then, the payment period was only 3 weeks, so the next month's payment was outside this weird window of payments. I called, they backed out the first month's interest charge, and set the rate back to 0%; I switched all the automatic payments to the 15th and figured that was it....until the next month, when the statement showed up with 0% interest on my purchase, $0 interest charge, but a $0.10 interest charge ON THE (removed) INTEREST CHARGE. All this to say----there may be some wonky thing that's particular to your card, but that's only because the profit system follows the path of least resistance and following the path of least resistance is what makes the river crooked!
It'd be fair to call and ask a human being to explain that charge, and to ask them how best to use that card without paying any finance charges. Failing that, there's a whole cottage industry of recommending credit cards online, based on your spending patterns and personal finance goals.
posted by adekllny at 5:02 PM on April 5, 2023
@debit cards: for personal finance reasons, it's totally reasonable to only buy stuff you have the funds for right now. That is to say, don't use your credit card to finance stuff you can't afford unless you need it right now and don't have a better purchasing option. But for fraud safety reasons, it is generally a better bet to put the purchase on a credit card and then pay the balance before the due date with your cash reserves, rather than using a debit card to pay. "With credit card fraud, the {bank}'s money is at stake. With debit fraud, your money has been stolen."
@timing of payments: if you pay your balance down to $0 every month when you get your bill (or schedule an auto-payment to do it for you), you should never get a finance charge. But I had a store card years ago where the terms were "pay the balance within 18 months, and you'll owe 0% interest." BUT as the great prophet said "you got it buddy the large print giveth and the small print taketh away"----I scheduled payments for the 1st business day of every month for 18 months to pay off the balance, before I ever saw a statement. When the first statement came, I patted myself on my back for my cleverness. When the second statement came, it had an interest charge, because my automated payment has processed before the statement printed, and hence "didn't count" towards that statement. Then, the payment period was only 3 weeks, so the next month's payment was outside this weird window of payments. I called, they backed out the first month's interest charge, and set the rate back to 0%; I switched all the automatic payments to the 15th and figured that was it....until the next month, when the statement showed up with 0% interest on my purchase, $0 interest charge, but a $0.10 interest charge ON THE (removed) INTEREST CHARGE. All this to say----there may be some wonky thing that's particular to your card, but that's only because the profit system follows the path of least resistance and following the path of least resistance is what makes the river crooked!
It'd be fair to call and ask a human being to explain that charge, and to ask them how best to use that card without paying any finance charges. Failing that, there's a whole cottage industry of recommending credit cards online, based on your spending patterns and personal finance goals.
posted by adekllny at 5:02 PM on April 5, 2023
Response by poster: This was very informative for me! All these are great ideas. I was inspired me to call and wait on hold for half an hour and talk to a human, who was confused and had me wait to talk to another human, but at least I got to listen to all that nice music.
For anyone interested in the mystery, the fee actually was interest from before I paid the card off last month, which evidently does not appear until the 4th of the next month (yesterday.)
Thanks everyone! Resolved.
posted by little striped mule at 5:28 PM on April 5, 2023 [7 favorites]
For anyone interested in the mystery, the fee actually was interest from before I paid the card off last month, which evidently does not appear until the 4th of the next month (yesterday.)
Thanks everyone! Resolved.
posted by little striped mule at 5:28 PM on April 5, 2023 [7 favorites]
Be aware that constantly paying off every charge every day might actually look suspicious to your card issuer, and conceivably could get your card cancelled.
I don't know about paying daily, but I've been paying mine at least weekly and sometimes more often than that for years with no issues. (It just makes me happier to pay it that way, I'm aware there is no actual benefit.)
posted by Dip Flash at 6:07 PM on April 5, 2023 [1 favorite]
I don't know about paying daily, but I've been paying mine at least weekly and sometimes more often than that for years with no issues. (It just makes me happier to pay it that way, I'm aware there is no actual benefit.)
posted by Dip Flash at 6:07 PM on April 5, 2023 [1 favorite]
For anyone else reading this, my card (and every card I’ve ever had) charges interest from day 1 on cash advances.
posted by third word on a random page at 1:40 AM on April 6, 2023 [2 favorites]
posted by third word on a random page at 1:40 AM on April 6, 2023 [2 favorites]
I have found that if I pay off a credit card balance, the last interest payment is on the following month's bill. I. E, if the card carried a balance on the January bill, I pay off the balance with the February bill, there may be interest from January appearing on the March bill. It feels like it didn't always work this way but I've had two different credit card behave this way in recent years. I don't do cash advances or anything else that has different interest compounding, just regular POS transactions.
posted by AzraelBrown at 4:34 AM on April 6, 2023
posted by AzraelBrown at 4:34 AM on April 6, 2023
I have a scheduled task in my calendar to pay my credit cards. And I have my card set to autopay the minimum, just in case, to avoid late charges, which also harm my credit score. Congratulations on paying it off! Such a big savings on their high interest!
posted by theora55 at 9:27 AM on April 6, 2023
posted by theora55 at 9:27 AM on April 6, 2023
> I don't know about paying daily, but I've been paying mine at least weekly and sometimes more often than that for years with no issues. (It just makes me happier to pay it that way, I'm aware there is no actual benefit.)
What tends to mix people up, and what I've seen a few people get their credit card closed on reddit over is "cycling" -- charging the limit to the card, paying it off then charging more in the same month, usually repeatedly. This is what banks don't like and will shut cards down over. If you need a bigger credit line, call up and ask for one. Or get a new card elsewhere.
Where this can become risky for OP is if, in the process of charging and paying back they accidentally spend more on the card in a monthly billing cycle than the credit limit. The easy way to avoid this is to just make one payment on the due date. If you're concerned about overspending, moving cash to a separate checking or savings account can accomplish that.
posted by pwnguin at 3:02 PM on April 7, 2023 [1 favorite]
What tends to mix people up, and what I've seen a few people get their credit card closed on reddit over is "cycling" -- charging the limit to the card, paying it off then charging more in the same month, usually repeatedly. This is what banks don't like and will shut cards down over. If you need a bigger credit line, call up and ask for one. Or get a new card elsewhere.
Where this can become risky for OP is if, in the process of charging and paying back they accidentally spend more on the card in a monthly billing cycle than the credit limit. The easy way to avoid this is to just make one payment on the due date. If you're concerned about overspending, moving cash to a separate checking or savings account can accomplish that.
posted by pwnguin at 3:02 PM on April 7, 2023 [1 favorite]
No, you didn't assume anything wrong. There shouldn't be any interest if everything you said is true and correct. Maybe something weird in their T&C...? I dunno. I've had several cards throughout the years so I like to think I know how credit cards work.
posted by mrabbe at 9:48 AM on May 9, 2023
posted by mrabbe at 9:48 AM on May 9, 2023
This thread is closed to new comments.
posted by pinochiette at 3:59 PM on April 5, 2023 [4 favorites]