topic Understanding PIF to avoid interests in Credit Cards

Understanding PIF to avoid interests

Lin55 — Fri, 28 Mar 2014 17:36:26 GMT

i.e.

My statement balance is $5000. Minimum Payment is $50 due March 25th and the next closing date is March 28th (today). I paid $50 well before March 25th to avoid a late payment. I then paid the remaining $4950 (I earn most of my $$ after the 25th) on March 27th (after minimum due date) and PIF'd the remaining balance.

Was I supposed to PIF before the minimum due date to avoid interests? Or just PIF before the next statement closing date? TIA

ETA: typo

Re: Understanding PIF to avoid interests

benandjerry — Fri, 28 Mar 2014 16:22:45 GMT

Yes. Presuming the total $5000 was accrued in the previous month (and not built up over a longer time), you were not charged interest until March 25. Since you only paid $50 on the due date, the other $4950 started accruing interest as of March 25.

On March 28, your statement will be 4950$, plus whatever you purchased between when the last statement cut (assuming feb 28) and march 28, plus the interest you now accrued.

If you want to avoid paying interest, you must pay the total statement balance between the date the statement is generated, and the date it is due.*

*except if it's a CreditOne card, they start charging interest from the moment you make a purchase.

Re: Understanding PIF to avoid interests

benandjerry — Fri, 28 Mar 2014 16:35:25 GMT

Addition: not sure what the limit of the card is, but if you only pay the minimum amount due and you are close to your limit on your card, that will probably make the card issuer quite nervous.

This is because it is a significant indicator you may not be able to handle the amount of credit. It is possible the issuer's system even automatically freezes your account or applies a CLD.

Re: Understanding PIF to avoid interests

Lin55 — Fri, 28 Mar 2014 17:43:14 GMT

@benandjerry wrote:
Yes. Presuming the total $5000 was accrued in the previous month (and not built up over a longer time), you were not charged interest until March 25. Since you only paid $50 on the due date, the other $4950 started accruing interest as of March 25.

On March 28, your statement will be 4950$, plus whatever you purchased between when the last statement cut (assuming feb 28) and march 28, plus the interest you now accrued.

If you want to avoid paying interest, you must pay the total statement balance between the date the statement is generated, and the date it is due.*

*except if it's a CreditOne card, they start charging interest from the moment you make a purchase.

Thanks for the info! I understand that I shall PIF BEFORE the due date now. LOL. I live and learn. However, I see a descepancy in your statement highlighted in red...

It is March 28th and my statement will show a statement closing balance of $0, plus whatever i purchased between Feb 28th and March 28th since as I said, I paid $50 first then paid $4950 on March 27th which payments posts on the same day.

Does that change things?

Re: Understanding PIF to avoid interests

Anonymous — Fri, 28 Mar 2014 17:57:12 GMT

@Lin55 wrote:
@benandjerry wrote:
Yes. Presuming the total $5000 was accrued in the previous month (and not built up over a longer time), you were not charged interest until March 25. Since you only paid $50 on the due date, the other $4950 started accruing interest as of March 25.

On March 28, your statement will be 4950$, plus whatever you purchased between when the last statement cut (assuming feb 28) and march 28, plus the interest you now accrued.

If you want to avoid paying interest, you must pay the total statement balance between the date the statement is generated, and the date it is due.*

*except if it's a CreditOne card, they start charging interest from the moment you make a purchase.

Thanks for the info! I understand that I shall PIF BEFORE the due date now. LOL. I live and learn. However, I see a descepancy in your statement highlighted in red...

It is March 28th and my statement will show a statement closing balance of $0, plus whatever i purchased between Feb 28th and March 28th since as I said, I paid $50 first then paid $4950 on March 27th which payments posts on the same day.

Does that change things?

From what I remember (which might be wrong!) the statement in red isn't quite right either. Most good credit cards have a grace period. If you start with a 0 balance at the beginning of the cycle, and pay in full by the due date, no interest is charged. But if you don't, interest is charged on all the purchases. So let's say Jan 1 balance is 0. You charge $5000 Jan 2, and nothing else. Statement cuts say Jan 31th, with a due date of Feb 15. On Feb 15, you pay $50. I think you will be charged interest on $5000 from Jan 2-Feb 15, and on $4,950 from then on. This is why it often takes paying in full for two consecutive cycles to get rid of interest.

Others, please correct!

Re: Understanding PIF to avoid interests

Lin55 — Fri, 28 Mar 2014 19:21:35 GMT

Dang, I am lost. lol Ok another, more simple i.e.:

Only one $5000 (1 transaction) purchase on Feb 25th.

Statement closing date: Feb 28th.

Now my Feb 28th statement says: $5000 balance.

Minimum payment of $50 Due on Date: March 25th

Next closing statement date: March 28th

I pay the $50 minimum on March 25th.

I then pay $4950 on March 27th.

My statement closes on March 28th and now shows a total balance of $0.00 on this March 28th statement.

Was I charged any interest?

Re: Understanding PIF to avoid interests

Anonymous — Fri, 28 Mar 2014 21:48:07 GMT

Nope, in

@Lin55 wrote:
Dang, I am lost. lol Ok another, more simple i.e.:

Only one $5000 (1 transaction) purchase on Feb 25th.

Statement closing date: Feb 28th.

Now my Feb 28th statement says: $5000 balance.

Minimum payment of $50 Due on Date: March 25th

Next closing statement date: March 28th

I pay the $50 minimum on March 25th.

I then pay $4950 on March 27th.

My statement closes on March 28th and now shows a total balance of $0.00 on this March 28th statement.

Was I charged any interest?

Nope, interest will start on March 29th, since you paid in full before the payment due date, you paid no interest.

Re: Understanding PIF to avoid interests

benandjerry — Fri, 28 Mar 2014 22:21:36 GMT

@Anonymous wrote:
Nope, in
@Lin55 wrote:
Dang, I am lost. lol Ok another, more simple i.e.:

Only one $5000 (1 transaction) purchase on Feb 25th.

Statement closing date: Feb 28th.

Now my Feb 28th statement says: $5000 balance.

Minimum payment of $50 Due on Date: March 25th

Next closing statement date: March 28th

I pay the $50 minimum on March 25th.

I then pay $4950 on March 27th.

My statement closes on March 28th and now shows a total balance of $0.00 on this March 28th statement.

Was I charged any interest?

Nope, interest will start on March 29th, since you paid in full before the payment due date, you paid no interest.

Incorrect, since the due date was march 25, not march 29. You will pay interest on the $4950 for 2 days: march 26 and 27.

Re: Understanding PIF to avoid interests

DaveSignal — Fri, 28 Mar 2014 22:28:51 GMT

This is getting way too complicated.

If you pay your full statement balance by the due date every month, you will not be charged any interest. Thats it. Its easy.

If you don't pay the full statement balance each month, you do not have a grace period and will be charged interest on purchases from the date they post, plus interest on any balance carried over from the previous statement.

ie: i charge $5000. get statement for $5000. I continue using my card and make an additional purchase for $1000. I pay my $5000 statement balance by the due date. I receive a new statement for $1000. I make more purchases totalling $xxxx. I pay $1000 on the due date. I have not been charged any interest.

Re: Understanding PIF to avoid interests

Anonymous — Fri, 28 Mar 2014 22:45:16 GMT

@benandjerry wrote:
@Anonymous wrote:
Nope, in
@Lin55 wrote:
Dang, I am lost. lol Ok another, more simple i.e.:

Only one $5000 (1 transaction) purchase on Feb 25th.

Statement closing date: Feb 28th.

Now my Feb 28th statement says: $5000 balance.

Minimum payment of $50 Due on Date: March 25th

Next closing statement date: March 28th

I pay the $50 minimum on March 25th.

I then pay $4950 on March 27th.

My statement closes on March 28th and now shows a total balance of $0.00 on this March 28th statement.

Was I charged any interest?

Nope, interest will start on March 29th, since you paid in full before the payment due date, you paid no interest.
Incorrect, since the due date was march 25, not march 29. You will pay interest on the $4950 for 2 days: march 26 and 27.

And as I said, I think this is also incorrect. By not paying in full, you will get charged interest on each item from the date it posted.

Re: Understanding PIF to avoid interests

Anonymous — Fri, 28 Mar 2014 23:14:55 GMT

Crap sorry, yes that's what I meant. For some reason I read 25th as due date but mind thought 28th was the due date. So you were charged interest starting the 26th until the day you paid in full.

Re: Understanding PIF to avoid interests

Anonymous — Sat, 29 Mar 2014 00:42:27 GMT

@Anonymous wrote:
Crap sorry, yes that's what I meant. For some reason I read 25th as due date but mind thought 28th was the due date. So you were charged interest starting the 26th until the day you paid in full.

OK, maybe I am wrong, but I still don't think that is true! This is my understanding of the basic model:

1) Interest is charged on all purchases from the date of charge. So, if I buy something on day 2 of the cycle, interest begins to accrue from that point on.

2) BUT: If the statement balance is paid in full by the due date, all the interest is waived.

This is where things like "average daily balance" comes in to interest calculations.

But want one of the experts to chime in!

Re: Understanding PIF to avoid interests

Chris679 — Sat, 29 Mar 2014 01:05:00 GMT

Most credit cards use average daily balance to calculate interest if you do not pay the full statement balance by the due date. Since you did not do that you will pay interest on that for last month plus you no longer have a grace period on new purchases for this month so they count towards the ADB for your next statement.

Re: Understanding PIF to avoid interests

NoAnchoviesPlease — Sat, 29 Mar 2014 01:24:39 GMT

How about if your payments during the month add up to the previous statement balance, but you charge during the current statement period as well?

i.e. March 1 statement balance is $2k.

Payment due date is 24th.

Pay $500 each week (payments posted on 1st, 8th, 15th, 22nd)

Charge $300 that's posted on the 20th.

Do you get the benefit of the doubt?

Re: Understanding PIF to avoid interests

Anonymous — Sat, 29 Mar 2014 01:25:06 GMT

@Anonymous wrote:
@Anonymous wrote:
Crap sorry, yes that's what I meant. For some reason I read 25th as due date but mind thought 28th was the due date. So you were charged interest starting the 26th until the day you paid in full.
OK, maybe I am wrong, but I still don't think that is true! This is my understanding of the basic model:

1) Interest is charged on all purchases from the date of charge. So, if I buy something on day 2 of the cycle, interest begins to accrue from that point on.
2) BUT: If the statement balance is paid in full by the due date, all the interest is waived.

This is where things like "average daily balance" comes in to interest calculations.

But want one of the experts to chime in!

When looking at monthly statements, there's always the section listing "amount subject to interest rate". This is any amount that wasn't paid from the prior month's statement. Keep in mind this won't include new purchases for that months statement. So keeping a balance from a previous month doesn't remove the grace period to pay without interest for purchases in the new statement, but only charges you interest on what you didn't pay in full from the month before.

Re: Understanding PIF to avoid interests

Chris679 — Sat, 29 Mar 2014 01:38:03 GMT

That is not correct. No PIF=no grace period for anything.

Re: Understanding PIF to avoid interests

Chris679 — Sat, 29 Mar 2014 01:44:06 GMT

Just pulled this off Discover website to clear up confusion. Exact same for Cap One

Finance Charge
A grace period is the amount of time from the date of the purchase to the date payment in full is due, during which you will not incur finance charges on your purchases. The length of a grace period varies from card to card, but it is commonly about 20 days. If you do not pay your bill in full, then you will not receive an interest-free grace period on future purchases.

Most credit cards do not provide a grace period on cash advances or balance transfers, so interest is assessed from the date of each of these transactions.

Method of Computing the Balance for Purchases
This is how transactions are added to calculate a cardholder's monthly balance. If the method is “average daily balance,” that means that each day's transactions are added to a running total, which is then divided by the total number of days in the billing cycle.

Re: Understanding PIF to avoid interests

bada_bing — Sat, 29 Mar 2014 02:09:28 GMT

@Anonymous wrote:
@Anonymous wrote:
@Anonymous wrote:
Crap sorry, yes that's what I meant. For some reason I read 25th as due date but mind thought 28th was the due date. So you were charged interest starting the 26th until the day you paid in full.
OK, maybe I am wrong, but I still don't think that is true! This is my understanding of the basic model:

1) Interest is charged on all purchases from the date of charge. So, if I buy something on day 2 of the cycle, interest begins to accrue from that point on.
2) BUT: If the statement balance is paid in full by the due date, all the interest is waived.

This is where things like "average daily balance" comes in to interest calculations.

But want one of the experts to chime in!
When looking at monthly statements, there's always the section listing "amount subject to interest rate". This is any amount that wasn't paid from the prior month's statement. Keep in mind this won't include new purchases for that months statement. So keeping a balance from a previous month doesn't remove the grace period to pay without interest for purchases in the new statement, but only charges you interest on what you didn't pay in full from the month before.

That isn't universally or generally true. It's important to remember that different credit cards

have different terms and conditions, so there is no absolute universal right answer. In most

cases I'm aware of, carrying a balance from the previous statement past the due date results

in a loss of the grace period (which not all cards have). You will pay interest on charges as they

are posted the following month and until you PIF a statement balance by it's due date to

reinstate the grace period. As an example, the wording from the Chase Freedom T&C:

How We Will Calculate Your Balance: We use the daily balance method (including new transactions).

That is why it is generally a bad deal to carry even a small balance, because the effective costs are

much greater than the stated interest rate, they include loosing the interest free grace period on

new charges.

Edit: Crap, I'm slow. Chris679 got 2 posts up while I fidgetted around saying basically the same thing.

Re: Understanding PIF to avoid interests

Chris679 — Sat, 29 Mar 2014 02:02:48 GMT

You hit on a great point though in that there is no universal rule but the major companies all use this method.

Re: Understanding PIF to avoid interests

Chris679 — Sat, 29 Mar 2014 02:05:31 GMT

My CU card will not charge interest if you PIF even if you rolled a balance over from the previous month. Almost all cards would hit you with residual interest.