I never realized this, but is this how CC companies charge you interest?

[jingramm]

Let's say you owed $500 on a statement ending in December.
You make a payment of $450 before the due date but you rack up charges in the same month for $500.
As a result, you end the statement in January with a balance of $550.
Then you get charged interest on the $550 even though majority of it is from a new purchase. Is that correct?
I thought you would get charged on the $50 remaining balance but I suppose they don't differentiate what comes from a new purchase and what is carried over balance. I talked to 2 Bank of America specialists and I can't get a straight answer.

 

[BrunoPuntzJones]

What does the cardmember agreement say? What they tell you on the phone is irrelevant.

Policy varies from card to card.

 

[zinfamous]

I would think it is charged to the current remaining balance at the end of the pay period. Your payment is due on the 24th, your payment goes through on the 23rd. Whatever remains in the account that qualifies for that pay period, is charged interest.

you may rack up $500 during that time, but I don't think all of it will qualify for the interest charge. Each payment period also has a billing period. the payment that is due reflects that billing period, specifically, and consequently, any interest charged the day after that due date has expired....at least, that's how I understand it.

so, you will be charged interest on $50 that will go as an additional charge for the next billing period. The balance due for the next period is now $550, + interest on $50. The total balance that qualifies for an interest charge in this billing period is now $550 + interest charge from previous period.

 

[Texashiker]

Posting in a credit card thread

 

[dullard]

Look up "two cycle billing". It was partially outlawed a couple years ago, but can still be used with restrictions. Two cycle billing means they get to charge massive interest in cases like you mention even though you owed only a little bit at the end of the billing cycle. Also it means the interest is almost impossible to stop (they charge this extra unknown interest, so you have a carried balance, so you get two cycle billing again, so they charge interest...). The best way out is to overpay. Pay more than your whole bill plus interest that they haven't yet charged. If you owe $500, pay at least $600. Then stop using your card and get a refund of the excess. Then you are back to normal.

 

[Fenixgoon]

pay CC in full each month. problem solved.

 

[Xonim]

First, neither of the cards I have work that way. In the situation you described, they both would only charge interest on the $50. Are you sure the interest doesn't just seem high because it's something stupid like 30% on a rewards card?

pay CC in full each month. problem solved.

This. Play the card shuffle and make the CCs work for you. In the past two years, I think my wife and I have netted something like $1500 in cash back / signup bonuses without paying a penny of interest.

 

[RockinZ28]

Would never get a card that billed like that.

I have 5 cc's and none of them work that way. You can buy something the day after the statement end date, and have almost a 60 day loan free of interest.

As long as you pay off whatever your statement end balance was by the next due date, you pay no interest.

 

[shortylickens]

The best reason to get a credit card is to slowly build your credit rating, so you can have a car and then a house.

Also its cool to see the limit go up. I've had a Navy Federal card since 1997. It started at 200 dollars and that was with a 200 deposit into a special savings account I couldn't touch.

Now its like 32 grand. I will never need to buy that much shit, but its amusing as hell.

 

[Schfifty Five]

Posting in a credit card thread

Posting in a Texashiker approved credit card thread.

 

[Aikouka]

First, neither of the cards I have work that way. In the situation you described, they both would only charge interest on the $50.

That's how all of my credit cards have worked.

This. Play the card shuffle and make the CCs work for you. In the past two years, I think my wife and I have netted something like $1500 in cash back / signup bonuses without paying a penny of interest.

What do you think would be a good card to use with my Chase Freedom? Finding another card with a good sign-up deal would be rather nice too!

 

[Mermaidman]

nm

 

[Schfifty Five]

That's how all of my credit cards have worked.



What do you think would be a good card to use with my Chase Freedom? Finding another card with a good sign-up deal would be rather nice too!

Southwest offers a 50,000 point bonus from time to time. That's good for like 2 round trip flights, or $400-500 in GCs. There's an annual fee, but you get additional southwest rapid rewards points for paying that fee.

 

[Aikouka]

Southwest offers a 50,000 point bonus from time to time. That's good for like 2 round trip flights, or $400-500 in GCs. There's an annual fee, but you get additional southwest rapid rewards points for paying that fee.

Hm.. would that only be worthwhile if Southwest Airlines has flights at my local airport? I've seen some great deals on flights for them on Slickdeals, but they don't service my local airport.

 

[Schfifty Five]

Hm.. would that only be worthwhile if Southwest Airlines has flights at my local airport? I've seen some great deals on flights for them on Slickdeals, but they don't service my local airport.

I mean yeah it would be useful if you could fly on southwest since you'd probably get bonus points towards your rapid rewards account.

However, you still get RR points for everyday purchases (typical 1%) and you can use it on gift cards and other things. It's basically no different than any other rewards card except that you get a fairly large sign up bonus.

Another card is Amazon Visa (my main CC). You get your standard 1 or 2% on normal purchases and 3% on anything purchased from Amazon. No annual fee either.

I've also gotten a lot of Amex Gold applications in the mail offering 50,000 bonus points as well. Annual fee is high though, $250 with first year waived.

 

[MomentsofSanity]

For most, interest is calculated on a daily basis, added at the end of each month to your account. Essentially it works like this. They take your APR, let's say 17%. Divide that by 365 and that's your periodic rate (PR). Then they take you balance each individual day of the month and add it up, then divide it by the number of days in your billing cycle at the end of the month. At the end of the month your interest is calculated taking your average daily balance (ADB), times your periodic rate (PR), times the number of days in the billing cycle (DIC).

So interest = ADB x PR X DIC.

Now, if you pay in full you reset the grace period which means you don't accumulate interest during the following month since there is no carried balance, but you will see interest because you had a carried balance from the start of the cycle until you paid in full. Don't pay it and you start all over again.

 

[wirednuts]

most cards charge you interest on whatever your balance is at the end of the monthly period.

the way op described would take a lot of computing power to do for millions of people 24/7. surely it would be easy to do now, but with the early internet not so much, and before that just forget about it.

i wonder though, do any cards charge interest on a day to day basis? what about minute to minute? i mean, might as well. just think.. . "ONLY 0.01% interest!" and in super tiny words PER MINUTE.

 

[Xonim]

What do you think would be a good card to use with my Chase Freedom? Finding another card with a good sign-up deal would be rather nice too!

We have just 2 right now. The oldest is the Amazon.com one for 3% back on all amazon purchases (we buy a lot at amazon). We also use it for 2% back at restaurants.

Our second one is an AmEx blue cash preferred. It has a $79 annual fee, but that gets you 6% back at grocery stores, and 3% back at gas stations and department stores like Kohls / jcp / etc. The free version with no fee is 3% and 2% respectively, so do the math for your spending. Just know you only get 6% on the first 5k of spending each year. The vendor has to report as a grocery store, so super target and super Walmart don't work. You can, however, buy gift cards at the grocery store and use them elsewhere (they can't tell the difference)...which is the reason they just put the 5k limit on.

Both of those get 1% on everything else, so we just use whatever is handy.

In the future at some point, I am going to open a fidelity Amex. It's 2% back on everything, but you can only get the rewards deposited into an investment / retirement account. No annual fee. Beats the 1% on everything else on most other cards.

EDIT: one of the best sign up bonus cards is the chase sapphire preferred. It's about $300 (technically miles, but i think you can get gift cards unless it has changed). They waive the fee for the first year. Not really worth it after that unless you buy a ton of flights.

 

[slayer202]

 

[SparkyJJO]

The best reason to get a credit card is to slowly build your credit rating, so you can have a car and then a house.

Also its cool to see the limit go up. I've had a Navy Federal card since 1997. It started at 200 dollars and that was with a 200 deposit into a special savings account I couldn't touch.

Now its like 32 grand. I will never need to buy that much shit, but its amusing as hell.

I wish my limit would go up on my primary card. It has a really low limit so I routinely go over the 50% and get a "warning" on my record about that, even though I pay it off every month and between my two cards I'm only using 10% of my available credit on average. The other card doesn't earn me any points so I have rarely used it. Now I'm trying to balance it out a bit more to help boost my score a little more, even though it is still pretty good already and I'm losing out on some rewards points. Not sure which is more beneficial long-term...

 

[gevorg]

The best way out is to overpay. Pay more than your whole bill plus interest that they haven't yet charged. If you owe $500, pay at least $600. Then stop using your card and get a refund of the excess. Then you are back to normal.

or just setup auto-pay to pay your balance in full every month