Does Interest on Interest Begin Accumulating Immediately?

[pinkandgrey]

Sorry for the weird question, but I got to wondering something. It's hard to explain, so it's probably best to use an example.

Say you've been carrying a balance on one card for a long time. Say the most recent statement (statement 1) cut with a balance of 5000. You pay the entire 5000 before the due date, bringing your balance down to zero. 

When the next statement (statement 2) cuts, there is a charge of $50 for interest (because you did have a balance for part of the statement period). I know there's no grace period when you're carrying a balance, so does that $50 interest charge start accruing its own interest immediately? Meaning that on the next statement (statement 3), you'll have another very small interest charge due to being charged interest ON the interest? 

I apologize if that's impossible to understand! 

Thanks! 

[Dadof31978]

Interest doesn't work this way..it's based upon the average daily balance through the entire cycle.  So you aren't paying "interest" on that $50, you are paying interest on the average daily balance of each day through the billing cycle.  The best way of clearing it all is to not use the card the rest of the billing cycle,  Otherwise yes you will pay interest on the average daily balance over the entire cycle.  The more days the daily balance is zero, the lower the interest will be. However, on your next statement you will have a grace period as long as you continue to PIF.  But what you are referring is the residual or trailing interest, but the best way to minimize it is to not use the card until the next billing cycle.  Does this make sense?

[pinkandgrey]

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@Dadof31978 wrote:

Interest doesn't work this way..it's based upon the average daily balance through the entire cycle.  So you aren't paying "interest" on that $50, you are paying interest on the average daily balance of each day through the billing cycle.  The best way of clearing it all is to not use the card the rest of the billing cycle,  Otherwise yes you will pay interest on the average daily balance over the entire cycle.  The more days the daily balance is zero, the lower the interest will be. However, on your next statement you will have a grace period as long as you continue to PIF.  But what you are referring is the residual or trailing interest, but the best way to minimize it is to not use the card until the next billing cycle.  Does this make sense?

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I think so. Thanks! 

The balance right now is showing as zero. When the statement cuts here in a couple days, there will be an interest charge. I will pay that right away so the balance will be zero again. When the NEXT statement cuts in just over a month, there will be no new charges, correct? 

[Dadof31978]

yes exactly right as long as you PIF by the due date that's how it works.

[pinkandgrey]

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@Dadof31978 wrote:

yes exactly right as long as you PIF by the due date that's how it works.

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Thank you! I've been scratching my head thinking, "Where does it end? If I get charged interest right away ON the interest, there will always be a minute balance!" lol