Yet another credit card question.
June 30, 2006 5:00 PM   Subscribe

I paid off my credit card in full this month after carrying a huge balance for years. They sent me a bill for the finance charge even though my payment was posted before due date. How is this even fair/legal to credit card consumers?

I know, fair and legal, two entirely different things. When I called the CC company, I was told that interest always accrued and if I had intended to pay the entire balance, I should have called them and told them so. They would have told me what my payoff balance with finance charge to that date was. Fuckers. They took half off the balance, but still, I'm pissed. I'm sure this is stated somewhere in small print in legalese on my statement, but have you ever heard of this?
posted by Jazz Hands to Work & Money (14 answers total) 1 user marked this as a favorite
I think the reason is because the interest is compounded daily. You actually have a grace period on new purchases, which is why you can pay by the due date in the cycle period where you bought that stuff and not owe any interest, even though technically by the due date you've "borrowed" that money for x amount of days.

But once you roll over the principle into a new month, that stuff is charged interest daily, no more "grace," so even if you pay off the principle you still have to pay that interest that accrued all month long.

Yes, I agree. It sucks.
posted by visual mechanic at 5:07 PM on June 30, 2006

It sucks, but it is in the terms and conditionsof most credit cards somewhere. I wouldn't have known to ask for the pay-off amount when I did a similar thing recently if it weren't for the fact that my girlfriend the economics major hadn't told me.

In her words, this is how the credit card companies "keep you sucking at the teat."
posted by Joey Michaels at 5:12 PM on June 30, 2006

The words to look for in the fine print are "average daily balance." Basically they add up your balance on all the days in each billing cycle, divide by the number of days in the cycle, and charge you interest on that amount. It's sort of the same as daily compounding, although you're not actually paying interest on the previous day's interest this way. It should be mentioned in your cardmember agreement.

(What you really need to watch out for is "two-cycle average daily balance" where you'll be paying interest on half of last month's balance the month after the payoff too... Discover does this.)
posted by kindall at 5:26 PM on June 30, 2006

If you had an understanding of how credit cards worked you wouln't be as pissed, because you would've seen it coming. It's in the agreement. I don't think you have much room to be pissed. Yes, I have plenty of credit card debt, and know how it is.
posted by cellphone at 5:26 PM on June 30, 2006

Without reading all those tiny little booklets (and you saved all those addendums they sent, right?) who knows - certainly they can and usually do set it up this way, the balance on your statement is seldom your payoff balance and your better bills will have this printed right there on the payment form. The reason they're not the same is exactly what they cited you - you accrued some interest between when they printed that statement and when they got your check.

So look on the bright side. You got them to cut in half some money you probably legally owed with a phone call. Why? You to them are a nightmare: you have paid off your balance. You can cancel that card and screw up their business plan on any whim (including being irate about your pay off experience) and they have nothing to hold over you.

Exact the best revenge. Fail to pile up another balance and you become their worst nightmare. You won, enjoy it.
posted by nanojath at 6:08 PM on June 30, 2006

This has happened to me several times over the past few months as I've been paying cards off. And even when I called and ASKED for the payoff balance, I still had a bill the next period with the finance charges on it.

Sucks, but nothing you can do about it.
posted by misanthropicsarah at 6:42 PM on June 30, 2006

I paid off my pretty big balance two months ago. No extra interest charges, but on the next bill (I had a $9 recurring charge) I noticed the due date had been moved forward 10 days, to the day I usually mail the check. If I hadnt looked, I would have accrued a late charge! Sneaky...
posted by lhauser at 6:46 PM on June 30, 2006

If they gave you half off you should be happy. The interest on the previous statement was for the time until the statement went out. They have no idea when you are going to make payments to them, so they have to calculate the interest for the next month after it happens. Naturally, if you wait half a month between when they send out the statement and when they receive your payment, they have to charge you interest for that time they were loaning you money.
posted by cameldrv at 6:46 PM on June 30, 2006

Response by poster: I guess my anger/confusion comes from the fact that the answer to the question "What is my balance?" and "If I were to be paying my bill in full, how much would I have to send?" are two different numbers.

I had my paper statement sent from them, my online statement and I even phoned in for the balance. What I failed to say is that I was paying it off in full. I only asked, "Hey, what's the balance on my account?"
posted by Jazz Hands at 6:54 PM on June 30, 2006

Response by poster: Considering that they were completely justified in collecting the entire amount, yeah, I feel "better" about the amount I still have to pay.

I was just on such a high note about getting that one done with, it was a let down to have just a little more to pay.
posted by Jazz Hands at 6:57 PM on June 30, 2006

Another sneaky thing they do, one which affects only those of us who use an online billing service to pay: The big companies regularly, once a year or so, switch the service centers they use, always from one obscure place to another, so that your payments end up being forwarded, possibly making them late.
posted by yclipse at 7:36 PM on June 30, 2006

That sounds really strange to me. I pay the full balance completely every month and have only paid maybe $2 total (I missed a payment once) in the 8 years I've had a credit card. If it was compounded daily, there would have at least been a note on the statement for finance charge, and I've never seen such an item.
posted by vanoakenfold at 11:49 PM on June 30, 2006

vanoakenfold, it depends on how the specific account calculates the interest. I've had accounts that did both - some specifically state that if you pay the statement balance by the due date you avoid finance charges. Which raises another point for Jazz Hands - the credit business is really competitive, so it may be worthwhile to shop for a new card. A little googling turned up this article which has an overview of some basic factors. One last thing - if you haven't paid that final balance yet, they might cancel the whole thing if you threaten to cancel the account otherwise. Just say that what happened made you realize the way they calculate interest is not in your financial interest, and you've decided to shop for a card with more competitive terms. When you pay off a balance anyway is always a good time to call them up and see if you can shake some benefits out of them.
posted by nanojath at 9:14 AM on July 1, 2006

misanthropicsarah writes "nd even when I called and ASKED for the payoff balance, I still had a bill the next period with the finance charges on it.

"Sucks, but nothing you can do about it."

I just over pay the balance with a seat of the pants wag based on number of days past billing date and the interest charged last month. This leaves a few bucks on the card which invariably they send me a cheque for after a month or two. Probably cost them more to send me the cheque than what it is worth.
posted by Mitheral at 6:22 PM on May 11, 2007 [1 favorite]

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