Spending while carrying a balance

[ftomasze]

Quick question for you guys.

Say you have a card with a 2.5K balance one month and the statement cuts. The new month commences and you spend 3K, you pay 3K before the statement closes and are left with 2.5K for the next statement cut.

In this situation will you be charged interest on the original 2.5K?

I seem to think that payments are applied to any interest bearing balance first then to non intrest bearing balances. Just wanted to confirm though.

[s_haliz]

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@ftomasze wrote:

Quick question for you guys.

Say you have a card with a 2.5K balance one month and the statement cuts. The new month commences and you spend 3K, you pay 3K before the statement closes and are left with 2.5K for the next statement cut.

In this situation will you be charged interest on the original 2.5K?

I seem to think that payments are applied to any interest bearing balance first then to non intrest bearing balances. Just wanted to confirm though.

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I will try to answer your question to best of my ability. Others may jump in. 

Assume the limit of your card is say $7,000. In this scenario, you have a statement balance of $2,500. You have 20-25 days to either pay minimum or pay in full. In the meantime you can spend $3,000 because it is still only $5,500 ($2,500 + $3,000) against your CL of $7,000. However if you don't pay in full of past month's balance on due date ($2,500) then you will be subjected to the interest retroactively and it would keep on until you pay in full everything. 

From credit report/score perspective, it would be beneficial if you keep your utilization below 30% (more like 10% or so). 

Updated Reply: 

Your payment of $3,000 is first applied to $2,500 balance and then $500 to your $3,000 spending. 

[ftomasze]

So that would mean I would not pay interest on the previous 2.5K correct?

[trumpet-205]

If you carried a balance because you didn't PIF the last time, then there'll be no grace period. Any purchase you made subsequently will immediately accure interest from day 1.

The only way to get your grace period back is to drop your balance to 0 or negative.

This is why it is generally a bad idea to put purchase on a card that has BT balance.

[barbaralee]

Interest is going to be based on your AVERAGE DAILY BALANCE. So if you have a 2.500 balance, and you spend 3k, and then you pay it right before the statement comes out you will be paying interest on whatever the average daily balance for that statement cycle was. 

Here's a calculator:

http://calculatecreditcard.com/average-daily-balance-calculator/#.U_KfMcVdXmc

[Anonymous]

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@barbaralee wrote:

Interest is going to be based on your AVERAGE DAILY BALANCE. So if you have a 2.500 balance, and you spend 3k, and then you pay it right before the statement comes out you will be paying interest on whatever the average daily balance for that statement cycle was. 

Here's a calculator:

http://calculatecreditcard.com/average-daily-balance-calculator/#.U_KfMcVdXmc

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OK, I agreed with s_halitz answer so maybe the question is ambiguous.

So let's start with a brand new card, that I get say Aug 1.   I spend $2,500 by Aug 25th when the statement cuts. So long as I pay $2500 before the due date (say Sep 10) then I will pay no interest on that no matter what the new charges are.

Barbaralee seems to be referring to when I haven't paid in full by the 10th.  Then I pay interest on both the old and new charges according to the average daily balance.

[barbaralee]

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@Anonymous wrote:

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@barbaralee wrote:

Interest is going to be based on your AVERAGE DAILY BALANCE. So if you have a 2.500 balance, and you spend 3k, and then you pay it right before the statement comes out you will be paying interest on whatever the average daily balance for that statement cycle was. 

Here's a calculator:

http://calculatecreditcard.com/average-daily-balance-calculator/#.U_KfMcVdXmc

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OK, I agreed with s_halitz answer so maybe the question is ambiguous.

So let's start with a brand new card, that I get say Aug 1.   I spend $2,500 by Aug 25th when the statement cuts. So long as I pay $2500 before the due date (say Sep 10) then I will pay no interest on that no matter what the new charges are.

Barbaralee seems to be referring to when I haven't paid in full by the 10th.  Then I pay interest on both the old and new charges according to the average daily balance.

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Yeah, lol, I had to re-read the question. I assumed that the OP was saying something along the lines of:

Spent 2.5k on credit card. Statement cuts. Made minimum payment (I assumed min. because later on he is referring to the entire 2.5k balance, but I digress...)

So first billing cycle he has paid min and is still basically carrying a 2.5k balance. He then charges an additional 3k. He pays off the 3k before the statement cuts.

Statement cuts again. Interest is going to be charged because first statement was not paid in full. To calculate the interest the ccc looks at what the avergae daily balance for that second billing cycle was, not the first billing cycle. So, yes, Lurker, technically the interest charged will be based on the old and the new balance. 

I think that is as clear as mud.

That is my understanding of the situation given. 

[bada_bing]

If you don't pay off the previous statement balance by the due date you loose the grace period for that month. 
It is the previous statement balance that is the payment amount that quailfies for the grace period. The total outstanding balance on the due date probably is different because its likely there are additional charges made after the statement cuts and before the due date.

PIF is a fairly big deal as far as effective interest rate. It isn't just the stated interest APR you pay, you'll be paying it on all charges from the moment they post for the next statement period as well. You not only pay whatever APR is due on the amount owed, you'll be paying that APR on the following month's purchases as soon as they post. Double whammy In an extreme example, carrying a single dollar unpaid from the statement balance could subject potentially thousands of $$$ of the next month's charges to the accounts APR as soon as they post.. 

Another reason why autopay is a smart option.