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The exact moment of the start and stop of the interest accrual

Aim_High
Senior Contributor

Re: The exact moment of the start and stop of the interest accrual


@Paranoid wrote:

@Aim_High wrote:

Interest should stop accruing the day your payment is posted to pay off your outstanding balance. 

You mean it stops accruing only after paying off to zero? What happens if I just start to pay not to zero, but the statement balance only and thus, the account never comes to $0?


It stops accruing after you pay off the prior month's "Current Balance" if you are still using the card.

If you are not using the card and paying off a prior balance over time, yes, it stops accruing completely only after you pay that balance to zero dollars

You only get the initial "grace period" to carry a balance without interest on "New Charges"

 

Examples:

*Assume due date is 1st of the month.

*Assume "billing cycle dates" begin on the 4th of each month.

     (2 or 3 days after due date is typical)

*Assume APR is 21% (Monthly periodic rate of 0.0175)

* Assume bank "minimum payment is the greater of $25 or 2.5% of balance.

    (Check your terms and conditions for each bank's policies.)

 

(1)  You charge $1000 on Sep 15.

       The charge will not appear on your statement until October.

       Statement generated Oct 4th with $1000.00 current balance due.

       You are in your grace period.  No interest accruing.

       You receive the statement in the mail about Oct 9th, for example.

       You have until Nov 1st to pay the full $1000 and avoid interest charges.

       You just floated that $1K for about 45 days interest free.

       That is the only time the bank will not charge you interest on that balance until it is paid completely off.

       

(2)  Same scenario above.

       By Nov 1, you make the "minimum payment". 

         (2.5% of $1K works out to $25, so either way your payment due is $25.)

       On Nov 2, your new balance is $975.  Interest begins to accrue.

       Let's say you don't use the card and carry the balance all month.

       $975 x 0.0175 = $17.06 interest charges due at end of Nov.

       New balance is $992.06 as of Dec 4th statement. ($975 + 17.06)

       Notice how little your balance fell.

       Depending on your APR, minimum payment requirements, your balance

       can actually continue to GROW with minimum only payments!!

       Minimum payments (only) are a trap that a lot of consumers fall into.

       You will give the bank hundreds or thousands of dollars in free money.

 

(3) Same scenario above.

       You paid the first $25 minimum payment on Nov 1.

       This time, you also put "new charges" on your card in November of $500.

       You make the next minimum payment ($25) by Dec 2.

              Balance is the $992.06 (above example)

               minus $25 payment = $967.06

               plus $500 = $1467.06.

 

       

      



Length of Credit > 35 years; Total Credit Limits > $500K
AoOA > 28 years (Jun 1993); AoYA (Aug 2020); Gardening since 08/15/20.
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Message 11 of 12
CreditCuriosity
Moderator

Re: The exact moment of the start and stop of the interest accrual

Locking this thread as basically the same question as this thread you started..https://ficoforums.myfico.com/t5/Credit-Cards/How-not-to-pay-interest-after-the-intro-APR-expiration...

 

Please feel free to continue you conversation on other thread

Message 12 of 12
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