Please Explain 30-Day Float

[thebanjoman]

---

@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.

[Anonymous]

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. 

[haulingthescoreup]

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.

[bobebob]

---

@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! 

[haulingthescoreup]

---

@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.

[bobebob]

---

@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).

[Anonymous]

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.

[Anonymous]

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!

[OnTheRebound]

 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.

[laboi_22]

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!