Understanding and eliminating finance charges

[avv7c0]

My wife and I do not carry balances on our credit cards, other than allowing a small balance ($1k-3k) report for scoring purposes, which then gets paid in full during the grace period. As such, we don't have much experience dealing with finance charges.

This summer, our son was born 3 months early. The medical bills piled up, plus my wife couldn't work. We paid 3 times our minimums, but obviously that doesn't prevent the interest charges.

Since then, my wife is back to work, and we've paid all our medical bills, as well as all our credit cards, except our primary card, the Capital One Venture. We have a credit limit of $10.5k on that card, with a statement balance of $8k and a current balance of $9.5k. I will be able to put $4-5k toward it before the payment due date. This will bring us back to our normal $3k posted balance. But I know they will keep charging interest until I pay the $8k in full.

My question is, if I pay the $5k before this statement, that will make my new statement balance approximately 4.5k. If I then pay $3k before the next due date, that leaves me with a $1.5k balance, but the original $8k will be paid in full. Will they keep charging me interest on the remaining $1.5k until I pay down to a zero balance? This will be difficult, because as our primary card, we have tons of auto pay bills running through it, so we essentially never have a true zero balance.

I know there were laws passed a few years ago to put some consumer protections in place, but since we don't carry balances typically, I never paid much attention to them.

[Skye12329]

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@avv7c0 wrote:
My wife and I do not carry balances on our credit cards, other than allowing a small balance ($1k-3k) report for scoring purposes, which then gets paid in full during the grace period. As such, we don't have much experience dealing with finance charges.

This summer, our son was born 3 months early. The medical bills piled up, plus my wife couldn't work. We paid 3 times our minimums, but obviously that doesn't prevent the interest charges.

Since then, my wife is back to work, and we've paid all our medical bills, as well as all our credit cards, except our primary card, the Capital One Venture. We have a credit limit of $10.5k on that card, with a statement balance of $8k and a current balance of $9.5k. I will be able to put $4-5k toward it before the payment due date. This will bring us back to our normal $3k posted balance. But I know they will keep charging interest until I pay the $8k in full.

My question is, if I pay the $5k before this statement, that will make my new statement balance approximately 4.5k. If I then pay $3k before the next due date, that leaves me with a $1.5k balance, but the original $8k will be paid in full. Will they keep charging me interest on the remaining $1.5k until I pay down to a zero balance? This will be difficult, because as our primary card, we have tons of auto pay bills running through it, so we essentially never have a true zero balance.

I know there were laws passed a few years ago to put some consumer protections in place, but since we don't carry balances typically, I never paid much attention to them.

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First off congrats on your son being born. As for avoiding interest charges, its only interest charged on the statement balance. So that being said, if you pay this month down to the 4.5k. Let the next statement cut, your going to be only charged interest on 3.5k because thats what the leftover balance on the statement balance was. If that makes sense, your only charged interest on statement balance not full balance. As for if they will keep charging interest on the 1.5k? Yes, until its all paid there will be interest and generally from my understanding interest is like a month behind, so if you pay the 1.5k in full next month your going to be still charged interest for this month. At least thats how it happened for me. Now interest isnt horribly bad, but obviously its not the greatest. Think of it like this though, if your interest rate is 12.99% and you have a balance ok the 8k. Your going to be charged $12.99 per $1000  so $103.92 in interest charges if you let interest be charged on that 8k balance. Obviously it will be a lot lower if you only get charged for the 3.5k

Hope i helped.

[Anonymous]

Interestt is charged on the "average dailly balance"    So this means, unlike when paying in full, the date of payments matter.  The earlier you pay, the smaller the average daily balance for that period, so pay what you plan as soon as you can, don't wait for statements or due dates when possible.

[Anonymous]

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@Anonymous wrote:

Interestt is charged on the "average dailly balance"    So this means, unlike when paying in full, the date of payments matter.  The earlier you pay, the smaller the average daily balance for that period, so pay what you plan as soon as you can, don't wait for statements or due dates when possible.

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+1

Interest accrues daily, so its better to pay it off as soon as you can, regardless of when the statement cuts.

As regards your other question, I *think* that CCC's are required to use your payment to pay off the portion of the balance that is accruing interest before the portion that is under the grace period. If your 3rd statement has $1.5k, and you've charged $1.5k in purchases, that amount should all be "new" and subject to the grace period.

That said, I would take the entire card to zero, regardless. You can check your balance online and choose to pay it off in full the day before the statement cuts. The statement should then cut at $0, and you don't have to refrain from using your primary card.

[NRB525]

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@Anonymous wrote:

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@Anonymous wrote:

Interestt is charged on the "average dailly balance"    So this means, unlike when paying in full, the date of payments matter.  The earlier you pay, the smaller the average daily balance for that period, so pay what you plan as soon as you can, don't wait for statements or due dates when possible.

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+1

Interest accrues daily, so its better to pay it off as soon as you can, regardless of when the statement cuts.

As regards your other question, I *think* that CCC's are required to use your payment to pay off the portion of the balance that is accruing interest before the portion that is under the grace period. If your 3rd statement has $1.5k, and you've charged $1.5k in purchases, that amount should all be "new" and subject to the grace period.

That said, I would take the entire card to zero, regardless. You can check your balance online and choose to pay it off in full the day before the statement cuts. The statement should then cut at $0, and you don't have to refrain from using your primary card.

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+1 for both these, what is that, +11?

Once you turn on the interest rate clock by letting the second statement cut with a balance, you are on the interest rate clock for everything charged. The best thing to do is stop using the card, pay it down to zero, wait until a statement cuts that is zero AND does not have any interest charges. It may have a small leftover interest amount. You can pay this small interest amount a few days after the statement print date, but you have to wait until after that payment clears the account. Now, you've paid the account to really zero, and can start using it again, after that last remainder interest payment, and have a grace period starting again.

This is a good reason to have two or more "favorite" credit cards, because you can SD one for a while if it gets too high to tackle in one month, and start "fresh" with a second card that was waiting in the bullpen, and is ready to provide a grace period.

And congratulations on the newborn

[Chris679]

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@NRB525 wrote:

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@Anonymous wrote:

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@Anonymous wrote:

Interestt is charged on the "average dailly balance"    So this means, unlike when paying in full, the date of payments matter.  The earlier you pay, the smaller the average daily balance for that period, so pay what you plan as soon as you can, don't wait for statements or due dates when possible.

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+1

Interest accrues daily, so its better to pay it off as soon as you can, regardless of when the statement cuts.

As regards your other question, I *think* that CCC's are required to use your payment to pay off the portion of the balance that is accruing interest before the portion that is under the grace period. If your 3rd statement has $1.5k, and you've charged $1.5k in purchases, that amount should all be "new" and subject to the grace period.

That said, I would take the entire card to zero, regardless. You can check your balance online and choose to pay it off in full the day before the statement cuts. The statement should then cut at $0, and you don't have to refrain from using your primary card.

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+1 for both these, what is that, +11?

Once you turn on the interest rate clock by letting the second statement cut with a balance, you are on the interest rate clock for everything charged. The best thing to do is stop using the card, pay it down to zero, wait until a statement cuts that is zero AND does not have any interest charges. It may have a small leftover interest amount. You can pay this small interest amount a few days after the statement print date, but you have to wait until after that payment clears the account. Now, you've paid the account to really zero, and can start using it again, after that last remainder interest payment, and have a grace period starting again.

This is a good reason to have two or more "favorite" credit cards, because you can SD one for a while if it gets too high to tackle in one month, and start "fresh" with a second card that was waiting in the bullpen, and is ready to provide a grace period.

And congratulations on the newborn

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+111 

One of the sneaky way CCC get your money is eliminating the grace period if you do not PIF.  With many cards you actually have to PIF for two months to get the grace period back.  Read your card agreement to be sure but you should use another card for purchases until you have PIF two consecutive statements.

[takeshi74]

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@NRB525 wrote:
+1 for both these, what is that, +11?

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Still just +1 (i.e. "I agree").

[NRB525]

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@takeshi74 wrote:

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@NRB525 wrote:
+1 for both these, what is that, +11?

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Still just +1 (i.e. "I agree").

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But Chris gets to do +111

[rlx01]

You don't have to get it to zero balance.

You just have to PIF two consecutive statements by the due date to re-activate the normal float/grace period.