Please explain Trailing Interest

[Anonymous]

I noticed on my Amex online statement something about Trailing Interest.I cant recall it word for word and it is late lol.Anyhoo to give some backstory: I have the Amex Everyday with a 0% Intro period that will end 9/20.I have carried a balance at times and other times PIF,because afterall its free right now.Other cards that do not have a 0% I PIF.My question is, what exactly is Trailing Interest and how do I avoid it? I googled it but dont completely understand.If you always PIF before the due date are you okay to charge (as long as you are in the next months billing cycle) of course and not be charged interest? Thanks for any advice or thoughts

[Anonymous]

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@Anonymous wrote:

I noticed on my Amex online statement something about Trailing Interest.I cant recall it word for word and it is late lol.Anyhoo to give some backstory: I have the Amex Everyday with a 0% Intro period that will end 9/20.I have carried a balance at times and other times PIF,because afterall its free right now.Other cards that do not have a 0% I PIF.My question is, what exactly is Trailing Interest and how do I avoid it? I googled it but dont completely understand.If you always PIF before the due date are you okay to charge (as long as you are in the next months billing cycle) of course and not be charged interest? Thanks for any advice or thoughts

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To avoid paying interest: 

Lets say you opened a new credit card on May 2nd.  Now you used that card for purchases, and your first statement posted on May 18th.  On that statement your Balance was $500, your Min payment was $25, and the due date is June 15th.  If you pay $500 dollars by june 15th, you avoid all interest charges.   If you do not make a payment equalling to your statement balance (PIF), then you will accrue interest on all your purchases from that date.  Many lenders will require you to PIF for the next 2 statements in order to no longer accrue interest on all purchases.  If you are now in a situation where  you are accruing interest on all purchases, it would be beneficial to pay off the credit card, and wait for 2 statements to post before using it again.  

Now trailing interest:

Say the above happened, and you paid $495 on June 15th.  You now have a balance of $5 that will accrue interest.  If you then make a payment on Jun 20th to eliminate the $5 dollar balance, you will still accrue interest on that $5 from june 16th (as well as any new purchases) until the next statement posts, even if you paid off the balance early.  

Hopefully this did not add more confusion (OOPS).  This is my understanding of how it works.  I am not a credit professional or Guru, but I believe I have the correct understanding. 

EDIT: After doing some research, I don't believe I correctly understand how this works, and I apologize for answering.  Hopefully an expert will reply.  

[RonM21]

Only when carrying a balance doe the trailing interest apply. Once a bill is sent out, any further spend and the interest accrued from that spend until the cycle's end date, would be the trailing interest.

[takeshi74]

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@Anonymous wrote:

My question is, what exactly is Trailing Interest and how do I avoid it?

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Due to the way interest is calculated if you've been carrying a balance (and loss of the grace period) paying in full won't cover the residual interest.  Best way to avoid it is to pay every statement balance in full.  If you have been carrying a balance you might need to pay in full twice in a row to deal with it.  You can also try calculating how much interest would be due and pay extra if you want to try to address it beforehand.  I'd advise paying a bit extra on top of that.  However, you may need to push a payment to do that.

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@Anonymous wrote:

If you always PIF before the due date are you okay to charge (as long as you are in the next months billing cycle) of course and not be charged interest?

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When the statement is generated you're already in the next billing cycle.  The prior cycle's due date will fall within the next billing cycle.  It looks something like this:

Cycle 1 Start

Cycle 1 End - Most cards report on this date

Cycle 2 Start

Cycle 1 Grace Period - If applicable

Cycle 1 Due Date

Cycle 2 End - And report date, if applicable

Cycle 3 Start

...and so on and so on...

 You don't have to PIF your current balance.  You only need to PIF the statement balance.  Make sure you understand the difference between the statement balance and your current balance.  They won't necessarily be the same amounts.

[Anonymous]

Current Balance is all monies from statement and beyond.All charges on credit card.

Statement Balance is amount owed in the given cycle.

Is the above correct? Im only in my second year of my credit journey and just when I think I have everything down down,thts not the case lol

So what you are saying is,trailing interest is the interest accrued on an account that has a carryover balance from prior statement (minus the minimum amount due) Am I right? My Amex Everyday card had a heading called "Trailing Interest" and it went on to say that my card could accrue this interest on any remaining balance,or somthing to that effect.I have been paying a little more than what is due and a couple times PIF,but Im in my intro 0 APR period and will be until Sept 20th.I am going to make sure I start PIF when my payment is due which is July 15th and always thereafter.I normally do anyway with exception to intro period cards...I should be good then in that case,correct? Thanks for responding