Billing, low limits, and multiple payments: how does this work?

[Anonymous]

Greetings all,
As mentioned elsewhere, I'm mostly newto using credit. Been very financially responsible and it's paid off. I'm just having trouble understanding how billing works with multiple payments through the month.

As I observed with parents many many years ago, credit prudence was simple: spend within your budget, and when the bill comes, write a check in that amount. Repeat. Never did they worry about CLs or interest.

Now, despite my age, I only just recently got in to online banking and bill pay in lieu of paperwork, including for my new cards. Which is great, because if I want to use my new Discover card to its potential, I need to pay it off frequently. I don't mind, I'm not spending money I don't have.

What I'm curious is how these multiple payments are credited towards my statement balance in order to PIF. Inevitably, I have charges that post the day after the statement cut. For example, this past one:

August billing period: I charge and pay through the month to keep my balance low.

September 7: statement cuts, last charges post; $83 due by oct. 2.

Sept. 8: restaurant charge posts. Online account page: $83 previous statement balance, $65 new charges. I choose to pay my full statement balance of $83 online. It goes through same day. If I waited until closer to the due date, as I understand, my available credit would be lower from more charges as the month goes by.

One website I read suggested that this method, because of the new charges, does not count as PIF: that your total owed is $145 and you are only paying a fraction of this. This seems incorrect to me, since if one was doing everything by paper/mail, you wouldn't even know what the new charges were necessarily; just what was on the bill.

So I would think that the first payment of a new billing cycle would be credited toward the last statement, then additional payments toward the current. Am I correct in this?

So far, in still on 0% APY so I don't want any surprises once that ends. I'd be inclined to setup autopay, but since discover does this closer to the due date rather than when the bill is generated, I would be hitting my limit with a month and a half worth of charges.

On the plus side: I've got two more accounts coming in with far higher limits, so I won't have to worry about this much longer, hopefully!

[HeavenOhio]

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@Anonymous wrote:
So I would think that the first payment of a new billing cycle would be credited toward the last statement, then additional payments toward the current. Am I correct in this?

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Yes. Once you pay your statement balance in full, additional payments go toward any new charges.

[Anonymous]

Thanks for taking the time to read my rather lengthy post and answering! I appreciate it. This was the link that gave me pause on the subject. I've found a lot of these billing cycle explanations only show what happens when you make minimum payments, or are so oversimplified they assume no new spending until after the previous statement was paid, exactly on the due date. Obviously not a reality unless you use a card once a month.

For others reading this, I found WalletHub's graphic very useful yet simple:

Another hypothetical question:

Using my real-life example, say I push a $50 payment before my statement closing date attempting to get my balance down for reporting purposes. It posts too late and comes in after closing, so I make another payment. That $50 payment means the bill is paid on time, but not in full by itself. Do the combined payments then count as paid in full, or would I begin accruing interest for carrying a balance?

[HeavenOhio]

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@Anonymous wrote:

Using my real-life example, say I push a $50 payment before my statement closing date attempting to get my balance down for reporting purposes. It posts too late and comes in after closing, so I make another payment. That $50 payment means the bill is paid on time, but not in full by itself. Do the combined payments then count as paid in full, or would I begin accruing interest for carrying a balance?

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As long as your statement balance is paid in full before the due date given on that statement, you're good as far as interest goes. Because your previous statement balance has been covered and you're attempting to reduce the effect of new charges, the only consequence will be that your new statement balance will be higher than you had hoped. Pay the new statement balance by the next due date, and you'll continue to avoid interest.

What's required is to pay your statement balance by the due date. Paying toward charges from the current month goes above and beyond that. You have until approximately the statement closing date to bring the balance down to your liking for reporting purposes. I say "approximately" because a payment made on the statement date may or may not post in time for the statement to cut. That can vary from bank to bank, and weekends may come into play too. The safe route is to bring your balance down to the desired amount a day or two before the statement cuts.

The only thing that's guaranteed by law is that initiating your payment on or before the due date will be considered on time, even if it takes a couple of days to post. This is important for those who like to wait as long as possible to pay their bill. In your case, you're paying your statement balance well before the due date.

[Anonymous]

So it seems it's essentially first-in,first-out. Got it. That's a huge reassurance, as I was worried I might be doing this all wrong and hit with huge finance charges once the promo period is up. Thanks a lot!