topic Please Explain 30-Day Float in Credit Cards

Please Explain 30-Day Float

Anonymous — Wed, 21 Sep 2011 22:42:33 GMT

I know very little about using credit cards and would appreicate if someone could explain what the terminology 30-Day Float means?

Re: Please Explain 30-Day Float

laboi_22 — Wed, 21 Sep 2011 23:41:31 GMT

I assume you are speaking about one's ability to use a credit card until the statement end date, and then you have "30 days" to pay what you charged, in effect creating a cash float. Keep in mind that not all credit cards give you 30 days to pay after the statement cuts,and also keep in mind that floating will eventually catch itself up, and will factor out to paying monthly just as you normally would. Hope that helps

Re: Please Explain 30-Day Float

Anonymous — Wed, 21 Sep 2011 23:59:44 GMT

@laboi_22 wrote:
I assume you are speaking about one's ability to use a credit card until the statement end date, and then you have "30 days" to pay what you charged, in effect creating a cash float. Keep in mind that not all credit cards give you 30 days to pay after the statement cuts,and also keep in mind that floating will eventually catch itself up, and will factor out to paying monthly just as you normally would. Hope that helps

This sounds like a normal billing cycle for CCs.

When I saw 30-day float I thought of certain companies that will, for a small fee, pay your bill now and give you 30 days to repay them. Somewhat like "floating" a check way back when checks wouldn't get funded for a week or two.

Re: Please Explain 30-Day Float

Anonymous — Thu, 22 Sep 2011 00:43:43 GMT

I have read that some people put ALL their monthly expenses on a cc and SOMEHOW have the money to pay it all off before they even receive the bill in the mail. The articles I've read talk about how "wise" this is and, they usually say something like: "people who do this are using 'free money.'"

But see, I'm of the same opinion as you are laboi 22, I believe that this trick will catch up to you. It sounds dangerous to me!

Re: Please Explain 30-Day Float

Anonymous — Thu, 22 Sep 2011 00:50:19 GMT

There's nothing dangerous. What it does is allow you to avoid having a balance reported, helping your utilization, and also avoiding interest being charged. You still get the same time period, you're just changine your own dates a little from what the actual statement date is. If your statement date was the 15th, it's best to try and have a 0 Balance by then, so making a payment by the 12th or so will be the best way to do that.

I think what they mean by "catching up to you"....is people who don't have the money to be charging what they're charging and yes, doing that will catch up to you, because at some point, you will have to make a payment and hopefully you can afford it at that time.

* And by the way, being able to afford ALL of your monthly bills every month is something that should be done and practiced...otherwise you will carry over a balance, and usually be charged interest for it...there is nothing wrong with either situation, just make sure you can afford the bill when it comes (or before), and realize when you're due dates are *

Re: Please Explain 30-Day Float

Anonymous — Thu, 22 Sep 2011 01:32:32 GMT

AustinTex21 wrote: "just make sure you can afford the bill when it comes (or before)"

That's the tricky (and dangerous) part to me. But, I suppose for those who can afford living like that, the float system must be great!

Re: Please Explain 30-Day Float

barbaralee — Thu, 22 Sep 2011 01:51:22 GMT

That is what I do, and I make less than 30k a year. I don't think so much of being able to afford it as much as that is just how I do my finances. I don't touch the money in my checking account other than to pay my cc bills. I run everything through a card, from gas purchases to groceries to frills. You name it, it gets charged. Every so often I will take out $50 from the atm, but I generally don't pay with cash. If you look at my online banking all of my checking account transactions are just to my credit cards (save rent/electric). I can't remember the last time I was charged interest for carrying a balance. I don't think it is a matter of being disciplined. I'm pretty content with what I have, and if I want to make a big purchase I plan and budget it in. I truly do think there are many people out there who are in the habit of putting things on credit and PIF every month... you don't have to be well off to utilize the float system.

Re: Please Explain 30-Day Float

Anonymous — Thu, 22 Sep 2011 02:06:19 GMT

It isn't too big of an issue for people who know what the are spending and have a plan. If you have the money to cover the expense, then this is a nice way to get a little extra out of the credit card comanies. Your earning interest on the money you have spent and you also get whatever rewards are tied to the card without paying interest.

Re: Please Explain 30-Day Float

Anonymous — Thu, 22 Sep 2011 02:30:46 GMT

@Anonymous wrote:
I know very little about using credit cards and would appreicate if someone could explain what the terminology 30-Day Float means?

Most credit cards have a grace period of about 20 to 25 days. This is the time from when the statement closes until the due date. If you Pay if Full (PIF) by the due date there is no interest on the charge. The float is the time from when you charge an item until you have to pay for it (without interest). 30-day float means you have to pay next month for what you by this month. This is a normal way to pay your CC bills.

Re: Please Explain 30-Day Float

bobebob — Thu, 22 Sep 2011 03:55:47 GMT

discernment wrote:
I know very little about using credit cards and would appreicate if someone could explain what the terminology 30-Day Float means?

discernment wrote:
I have read that some people put ALL their monthly expenses on a cc and SOMEHOW have the money to pay it all off before they even receive the bill in the mail. The articles I've read talk about how "wise" this is and, they usually say something like: "people who do this are using 'free money.'"

But see, I'm of the same opinion as you are laboi 22, I believe that this trick will catch up to you. It sounds dangerous to me!

OP is bringing up two mutually exclusive terms to this thread. The "30-day Float" or industry term "grace period" has been addressed.

The other practice of PIF before statement comes out can't be done if you are using the grace period to delay paying the bill until just prior to the due by date.

You can treat your credit and pay your credit card bills different ways:

1. Pay min payment prior to due date.

Smaller short term payment at the expense of paying sometimes large (huge) interest fees as balance grows over time. Cons:interest fees, lower credit score (due to balances and higher util). No, you aren't going overdue. But this is a bad road to go down and gets many into trouble.

2. Pay in Full (PIF) before the due date. This is what most of the more conservative credit consumers do. You can use the grace period to put off payment of purchases until the due date which can give you a breather. But it isn't good to spend so much on your CC that you need this. Benefits are that you aren't going to pay any interest fees. Small con in that what you have as your balance on the statement is what gets reported to the CRA's. So even if you PIF before the due date as the agreement states, The CRA's will see that as a balance that you are carrying month to month and your credit score won't be quite what it could be if your balance reported was $0.

Which brings us to:

3. PIF prior to statement coming out.

The reason some of us like to PIF before the statement comes out is so that when the credit card company (CCC) reports our account information when the statement comes out, we are reported as having a $0 or close to $0 balance. This helps our credit rating by reducing our utilization(util). Util is calculated by taking your total balances and dividing it by your total credit limit (CL). The only cons to this are that you are giving up the grace period. The benefit is a slightly higher credit score.

Putting all the monthly expenses on your CC can help you in a couple of ways:

1. You can hang onto your $$ just that much longer in an interest bearing account(ideally) before you have to give it up to pay your bill when the grace period is over. IMO this is the least reason to pay monthly expenses by CC. With interest rates where they are, you'd be lucky to buy a stick of gum with your interest. It does give you some breathing room if you need it. But if that breathing room is all that is keeping you solvent, you are in bad shape already.

2. A better reason is to use a CC that gives you cash back or points that you will use. For instance, I have a Costco AmEx card. I put $2,000 to $3,000 per month on it paying mostly for things in my budget and the rest on personal items I know I have the money to buy. I always PIF before the due date so I've not paid any interest. But for the purchases I've paid with the card I've earned about $272 so far this year (prob be about $350 by end of year). So that's $350 of free money AmEx gives me. With no annual fees (AF) for the card that's a pretty sweet deal! (and that's over and above the $188 I got as a Costco account rebate for the stuff I bought at Costco)

Obviously, the CCC's are betting that you will carry a balance month to month and they will be charging you interest which more than covers the cash back that they had to pay you. And on average that is just what happens. Most people do make them money. But if you are disciplined and only spend what you can afford to pay off every month, you can turn it around and make money off of the CCC's. (one of the more pleasant feelings in the world, BTW)

And we don't "SOMEHOW" have the money to pay our bill in full. It is by design.

Part in parcel of making this plan work for you is to be disciplined, make a good budget and stick with it. Keep track of what you spend and make sure it's within the budget you set. That way when the bill comes, you'll know that the money is there in the bank to pay it.

However, if you know that you won't be able to resist the temptation to spend more on the CC than you know you can pay, then you are much better off not trying it at all.

Good Luck,

Re: Please Explain 30-Day Float

thebanjoman — Thu, 22 Sep 2011 04:55:39 GMT

@Anonymous wrote:
@Anonymous wrote:
I know very little about using credit cards and would appreicate if someone could explain what the terminology 30-Day Float means?
Most credit cards have a grace period of about 20 to 25 days. This is the time from when the statement closes until the due date. If you Pay if Full (PIF) by the due date there is no interest on the charge. The float is the time from when you charge an item until you have to pay for it (without interest). 30-day float means you have to pay next month for what you by this month. This is a normal way to pay your CC bills.

To tack onto Wolf3s excellent description of a 30 day float, and to clarify the "catch up to you" comment...

Consider this example: Say a person's average spend is $1,000 per month, average earnings are $1,000 per month, and they go from using cash, to using a plain, vanilla, no rewards/frills credit card with a ~15 day grace period. If their spend is pretty even throughout the month, the average length between charging an item & paying for it without interest is 30 days (roughly 1/2 the statement period + grace period, for steady spends).

Month 1. $1,000 in new charges. $0 in CC bills paid. net result, $1,000 more in bank account end of month.

Month 2. $1,000 in new charges, $1,000 in CC bills paid (for month 1), Net result. $0 more in bank account (not counting interest)

Month 3. $1,000 in new charges, $1,000 in CC bills paid (for mohth 2), Net result. $0 more in bank account (not counting interest)

Month 4... so on.

See how in month 2, and onward, this example person spends the same as they pay in CC bills? That's the catch-up. Without an increase in monthly spend, there is minimal new net cash benefit as time progresses (only gaining the compounding interest on the $1,000 average monthly spend). Decreases in monthly spend actually reduce the benefit of the 30 day float. As the bills are paid by their due dates, no interest/penalties are charged. If one ever cancelled the credit card, and went back to cash only, the early "boost" to the bank account balance would need to be repaid in addition to the normal $1,000 per month spend of the person.

It may not be the most FICO-friendly manner to manage your credit, as far as utilization is concerned, but until the due-date, (technically speaking) any credit card usage is essentially a no-cost, short-term loan. Paying down ahead of statement cutting may be FICO beneficial, but is sacrificing a portion of that interest-free loan.

CAVEAT: Simple illustrations are just that, simple examples. Real world factors can be different (rewards cards, income changes, spend changes, so on) and real people may be more or less responsible. If said example person earns less then the $1,000 per month... no extra cash is really generated, and this is likely a rocky road to credit ruin. if they earn more, then you may be diluting this example by using regular savings rates.

-- edit was to move second & third sentences in Caveat to this location, for example flow purposes.

Re: Please Explain 30-Day Float

Anonymous — Thu, 22 Sep 2011 05:06:40 GMT

Thank you to everyone for your excellent input on this, I really appreciate it. I continue to be amazed at how smart and innovative all you folks are! My husband and I wish we would have known even half of the things we've learned here since joining this website at the beginning of this month. We would have raised our children and grandchildren a lot differently and, we would have, no doubt, been a lot better off than we are now.

Re: Please Explain 30-Day Float

haulingthescoreup — Thu, 22 Sep 2011 05:19:48 GMT

The 30-day float made sense (for those with way more intestinal fortitude than I have) back when you could actually earn interest by keeping your money in savings for that extra bit, but now that most savings accounts pay less than 1%, you're talking about earning 1%/ 12 per month, or 1%/ 24 per 15 days. That's 83 cents per month or 42 cents per 15 days. Frankly, I'm just too lazy.

Re: Please Explain 30-Day Float

bobebob — Thu, 22 Sep 2011 13:35:13 GMT

@haulingthescoreup wrote:
The 30-day float made sense (for those with way more intestinal fortitude than I have) back when you could actually earn interest by keeping your money in savings for that extra bit, but now that most savings accounts pay less than 1%, you're talking about earning 1%/ 12 per month, or 1%/ 24 per 15 days. That's 83 cents per month or 42 cents per 15 days. Frankly, I'm just too lazy.

HTSU,

That's the stick of chewing gum I was taling about!

Re: Please Explain 30-Day Float

haulingthescoreup — Thu, 22 Sep 2011 13:44:24 GMT

@bobebob wrote:
@haulingthescoreup wrote:
The 30-day float made sense (for those with way more intestinal fortitude than I have) back when you could actually earn interest by keeping your money in savings for that extra bit, but now that most savings accounts pay less than 1%, you're talking about earning 1%/ 12 per month, or 1%/ 24 per 15 days. That's 83 cents per month or 42 cents per 15 days. Frankly, I'm just too lazy.
HTSU,

That's the stick of chewing gum I was taling about!

Duh me, and now I see where you wrote that!

That's about right for a piece of Orbit spearmint.

Re: Please Explain 30-Day Float

bobebob — Thu, 22 Sep 2011 14:20:02 GMT

@haulingthescoreup wrote:

@bobebob wrote:
@haulingthescoreup wrote:
The 30-day float made sense (for those with way more intestinal fortitude than I have) back when you could actually earn interest by keeping your money in savings for that extra bit, but now that most savings accounts pay less than 1%, you're talking about earning 1%/ 12 per month, or 1%/ 24 per 15 days. That's 83 cents per month or 42 cents per 15 days. Frankly, I'm just too lazy.
HTSU,

That's the stick of chewing gum I was taling about!
Duh me, and now I see where you wrote that!

That's about right for a piece of Orbit spearmint.

Go with Stride. That brand lasts a LONG time. You'll get your money's worth out of it (and a sore jaw).

Re: Please Explain 30-Day Float

Anonymous — Thu, 22 Sep 2011 14:45:09 GMT

Everyone has already explained how the 30 day float works but I'll explain a few more things I have learned personally from using credit cards and mostly advice from other people.

First of all one thing I regret was not getting a credit card when I was in college. I first started using my debit card around 2004 or 2005 and didn't go for my first credit card until earlier this year after I had graduated and secured my first regular job. If I had a credit card for the last several years and used it sparingly or just for gas monthly I would have the history for a prime card right now. Instead I am going to wait about a year and pay in full every month. I was rejected earlier this year by both BoA and Citi and the reason in the letter was lack of credit references. Capital One accepted me for an unsecured card with a 500 limit. I am hoping since it is unsecured and a cash rewards card I would be eligible to upgrade to the Venture card eventually.

I had several opportunities to get a credit card though. Back in the years between about 2004 and 2006 regularly people on campus would hand out flyers that say, "Free deli sub if you show your student ID, free Papa Johns Pizza with your student ID."

Then the fine print at the bottom of the flyer would say *with participation in credit card promotion. Or something like that. Many times it wasnt even printed on the flyer it just said come get your free pizza by showing your student ID. I did hear from several people that you only got your free food by signing up for a credit card.

I just ignored it because it sounded fishy. I wouldnt trust signing up for a credit card that way. Plus that is probably how so many people got in trouble before the economy tanked. Poor hungry college kids sign up for a credit card for the free food, need money now for bills, run up the credit card, cant pay it.

Anyway here I am now and with my current card I put all my everyday spending on it. Since the limit is low I still have to pay rent and utilities with my checking account and use my credit card for gas and groceries. Once I do eventually get a better card I plan on putting all my monthly expenses on it. It will actually be easier to manage my spending I think. Since everything will be going on my card, Just take my monthly net income, and whatever that is that is the most I can have on my card at any one time.

Also a prime card would be useful now as I occasionally travel for work. If I had a card with a high limit I could put all my travel expenses on the card, then pay the bill later after my employer reimburses me for the travel. The way it works is I spend out of pocket for all hotel, food, and transportation, save the receipts, then get reimbursed for it when I get back. As of now I have to ask for a cash advance from my employer before the trip just to be sure enough is in my checking account for the trip. It is pretty inconvienient. With a prime credit card none of the money would leave my checking account during the trip, I would just have a high balance until I am reimbursed.

Credit cards definitely are very nice if you live within your means, and if unexpected expenses come up like your car breaks down and you don't have the money to fix it right then, if you have to carry a balance for a few months it is not the end of the world.

Re: Please Explain 30-Day Float

Anonymous — Thu, 22 Sep 2011 17:12:05 GMT

Dadaluma83, your post was VERY helpful. Thank you!

Hearing how actual people use their credit, successfully, is most encouraging.

I read the following on another thread and I have to say, I thoroughly identify with this philosophy:

jasimae wrote:
My grandmother was from the old, old, old school of banking and literally kept her money in a breadcrumb container in the cupboard. It got to the point where she had several. She never had a credit card a day in her life. If she couldn't buy it with cash, she didn't buy it. (Although she never had any problems buying anything because cash is ALWAYS king.) I've adopted that philosophy, to a degree. I keep some money in my bank account (the bare minimum to cover my bills) and the rest is hard cash that I keep close at hand and which I won't even consider putting in a bank or financial institution. Why? Because you just never know. Part of playing this credit game is to learn to not be dependent upon it.

_________________________________________________________________________________________________________________________________________

For me, at this point in time, using a credit card for all our monthly expenses would be too dangerous. We are only living on my husband's income which comes every other Friday, BUT, it is NEVER EVER a predictible amount, or the same amount. We never know what its going to be. So, because we are not working with a for sure set amount, the way it works now is, we pay our $700 rent from the check that comes earliest in the month, which leaves less than $100 in the checking account. Then, with the check that comes later in the month we buy whatever else we can afford to get. Sometimes that second check of the month is a whole lot less than we were expecting. As Jasimae said in her post: "you just never know" --- Amen! We've learned to err on the side of great caution.

Also, it seems to me that using credit the way some of you folks describe IS like playing a game. The methods and innovations you describe are fascinating! Daily, I am amazed with all that I read on this website. How blessed we are to live in a time where so many people from all different walks of life can come together to share so openly a subject so private as money. I am spellbound!

Re: Please Explain 30-Day Float

OnTheRebound — Thu, 22 Sep 2011 22:27:46 GMT

One way I take advantage of float time and maximize rewards using credit cards for major purchases is to time the purchase. For example,

not long ago, I purchased a $7K used truck with my wife's Chase Freedom which has a 29.24% interest rate. I timed the purchase right after the statement cut, which is the 26th. The purchase didn't post until the following 26th statement date and the due date was the 23rd of that month, giving me about 53 days float before I had to come up with any real money.

I got $70.00 cash back from Chase and earned a whopping $3.83 (if my math is correct) by keeping that $7K in my savings account for 53 days.

Needles to say, this is not the ideal way to finance a vehicle. Only if you have the cash to pay in full when the bill comes due.

Re: Please Explain 30-Day Float

laboi_22 — Thu, 22 Sep 2011 23:39:32 GMT

I think this is a great post with great info. I just want to put this idea out there. Yes 30 days is a typical time frame for paying credit card bills. The idea however that a credit card user can place purchases on their cards and have 30 days later to pay while using their money saved in their checking account for other purchases is a dangerous one. Thinking that "oh I'll just pay that next time I get paid since I need this other money in my checking account to eat out every night" will hurt the cc user in the long run. Not saying that is what the OP would do, but I've done this before and I've gotten in trouble.

A perfect solution to that problem,and this is only my suggestions, and this is how I handle my cc accounts. I use my cc as my debit card for the security and the rewards. When I use my debit card, I keep all receipts and I balance my check book. I do the same with my cc's when I'm out of money I stop using my cc's. Once my bill is due my money in my checking account is really still there since I'm subtracting it but not really using it until my bill comes in. Then I PIF. Not sure if this would help but if you just think of your cc as your debit card, and balance your check book as normal, it will work out great as it has for me. Just wanted to put that out there!