Avoiding Interest

[msarro]

Hey everyone.
I use a cash back reward card for gas purchases (and only gas purchases). I budget money to pay this off. I just received the first statement, and there are two numbers - the statement balance, and the current balance. The interest is calculated as average daily balance including new purchases. The grace period is 25 days. In my case, is it better to pay the current balance, or the statement balance? I want to avoid interest charges, but would prefer to pay the statement balance (the difference is about 20$, but still, that's 3 days of food). Any advice?

[dczech09]

The current balance is the portion of your overall balance that has not accrued interest as it is under the grace period still. Thats why it is higher than your statement balance.

The statement balance is the balance owed against the card as of the date of the statement. Remember your balances represent a "snap-shot" of what you owe.

I'm not a particularly avid CC user as I generally stick to cold-hard cash. I do know that people who do use CCs recommend paying the balance in FULL every month. It may be more money, but guess what? You're gonna pay back that money at some point anyway. If you can do it now, then do it.

[disneysteve]

You only need to pay the statement balance each month in order to avoid interest charges. Any charges that have been made after the statement date won't accrue interest until after the next billing date.

[BuckyBadger]

Originally Posted by dczech09

...I do know that people who do use CCs recommend paying the balance in FULL every month. It may be more money, but guess what? You're gonna pay back that money at some point anyway. If you can do it now, then do it.

Originally Posted by disneysteve

You only need to pay the statement balance each month in order to avoid interest charges. Any charges that have been made after the statement date won't accrue interest until after the next billing date.

What DS describes *IS* paying the balance "in full." You want to pay the statement balance. The current balance is the statement balance plus whatever you've spent on the card since the closing date, which is the arbitary day of the month when one month stops and the next month starts.

I always pay the statement balance and I've never paid a dime of CC interest in my life.

[MonkeyMama]

Yup - the statement balance will do.

[jpg7n16]

Pay off the bigger balance.

[BuckyBadger]

Originally Posted by jpg7n16

Pay off the bigger balance.

Why? What is your reasoning behind this?

[msarro]

Lol, this is why I asked I seem to see both answers a lot. While I agree that the statement balance makes sense, what happens if the day after the statement is created I charge something on the card? It will show in the total current balance, but not on the statement balance. If there is a delay of 30 days until the next statement, wouldn't I pay 5 days of interest on that purchase? Or is the grace period from the day the statement is issued? I may just call the company and see if they can explain.

[disneysteve]

Originally Posted by msarro

If there is a delay of 30 days until the next statement, wouldn't I pay 5 days of interest on that purchase? Or is the grace period from the day the statement is issued? I may just call the company and see if they can explain.

No. The grace period is from the billing date, not from the transaction date. That's where you are getting confused. You need only pay the amount of the bill, not any amount charged after the billing date. That will be taken care of on the next bill. As long as you pay the full statement balance of each bill every month, you won't pay a penny in interest charges.

[BuckyBadger]

Just pay the statement balance and you will never pay any interest. Anyone who tells you otherwise is misinformed. There is no need to give the CC company money any earlier than you have to.

[shanecurran]

I have a capitalone card. I ran a balance for several months and then I paid it off in full last month (statement balance). I was charged for interest on the next bill. I called capitalone and they credited back the interest charge. It is the second time this mistake has been made by capitalone, makes me wonder if they do it on purpose ho9ping the customer wont notice or is ignorant to their policies.

[kork13]

Originally Posted by shanecurran

I have a capitalone card. I ran a balance for several months and then I paid it off in full last month (statement balance). I was charged for interest on the next bill. I called capitalone and they credited back the interest charge. It is the second time this mistake has been made by capitalone, makes me wonder if they do it on purpose ho9ping the customer wont notice or is ignorant to their policies.

Realistically, that's not a possibility. It's fairly difficult for a large company to isolate and target specific individuals for pretty much anything, let alone attempt to cheat them and get away with it without alerting regulators, watchdog groups, and large groups of interconnected customers (hello Google!).

Likewise, because it's such a large company, it's fairly simple for processing errors (on the part of random individual employees) to occur. And when you serve a few hundred thousand customers, even just a .1% error rate (most companies will be well above that) is still a fairly large number of mistakes.

[shanecurran]

Originally Posted by kork13

Realistically, that's not a possibility. It's fairly difficult for a large company to isolate and target specific individuals for pretty much anything, let alone attempt to cheat them and get away with it without alerting regulators, watchdog groups, and large groups of interconnected customers (hello Google!).

Likewise, because it's such a large company, it's fairly simple for processing errors (on the part of random individual employees) to occur. And when you serve a few hundred thousand customers, even just a .1% error rate (most companies will be well above that) is still a fairly large number of mistakes.

I wasn't implying that they targeted me specifically but possibly that it is a glitch in the system that they have conveniently ignored.

[jpg7n16]

Originally Posted by BuckyBadger

Why? What is your reasoning behind this?

Because of the two of them, whichever is bigger is the one that describes how much debt you actually have out there.

They don't charge you interest on your payment, they charge on your whole balance.


Either way, the more you pay, the faster the debt goes away, so when in doubt between two balances owed shown on the statement - just pay the larger balance.

[greenskeeper]

Originally Posted by jpg7n16

Because of the two of them, whichever is bigger is the one that describes how much debt you actually have out there.

They don't charge you interest on your payment, they charge on your whole balance.


Either way, the more you pay, the faster the debt goes away, so when in doubt between two balances owed shown on the statement - just pay the larger balance.

are you thinking of "minimum payment"?

The OP sounds like he/she is asking about the statement balance (for the previous month) versus the current balance.

As long as they have been current each month, the statement balance is all that is needed to pay, no interest has been charged on the additional purchases.

HOWEVER, if they have only payed the minimum and a balance has carried over, then yes you are correct and interest is being charged on more than just the statement balance.

[disneysteve]

Originally Posted by jpg7n16

They don't charge you interest on your payment, they charge on your whole balance.

Originally Posted by greenskeeper

The OP sounds like he/she is asking about the statement balance (for the previous month) versus the current balance.

As long as they have been current each month, the statement balance is all that is needed to pay, no interest has been charged on the additional purchases.

HOWEVER, if they have only payed the minimum and a balance has carried over, then yes you are correct and interest is being charged on more than just the statement balance.

greenskeeper is correct. If you have no outstanding balance, you will not pay interest if you pay the statement balance in full every month. It is not necessary to pay charges posted after the statement date.

[GREENBACK]

There should be an "amount due" posted on the statement that should be easy to seperate from the total acount balance. I honestly do think banks make this mildly confusing to get people to send in a little extra before it's really due.

[BuckyBadger]

Originally Posted by jpg7n16

Because of the two of them, whichever is bigger is the one that describes how much debt you actually have out there.

They don't charge you interest on your payment, they charge on your whole balance.


Either way, the more you pay, the faster the debt goes away, so when in doubt between two balances owed shown on the statement - just pay the larger balance.

Incorrect.

They do not charge you interest on charges made after the closing date as long as you pay them when they come on the next statement, of course. We aren't talking about "minimum payments," of course. It's pretty clear what a "minimum payment" is.

For example: Lets say I charged $500 from the 16th of May to the 15th of June. The cc company waits a few days to make sure everything gets recorded and then sends me my bill on the 20th or so. My bill has a statement balance of $500. But if I charged $100 on the 16th, my total balance will be $600. I do NOT have to pay $600, I only have to pay $500. The $100 I charged on the 16th will show up on July's statement and it will NOT be charged interest.

There is NO reason to pay an extra $100 30 days before it is due. That money stays in your account earning about 8 cents of interest. You pay it in July when they ask for it.

I have been paying statement balances for 17 years and never paid a penny in interest. There is no good reason to pay money before you have to when it could be doing something else more useful elsewhere.

[JoshuaHeckathorn]

Originally Posted by BuckyBadger

Incorrect.

They do not charge you interest on charges made after the closing date as long as you pay them when they come on the next statement, of course. We aren't talking about "minimum payments," of course. It's pretty clear what a "minimum payment" is.

For example: Lets say I charged $500 from the 16th of May to the 15th of June. The cc company waits a few days to make sure everything gets recorded and then sends me my bill on the 20th or so. My bill has a statement balance of $500. But if I charged $100 on the 16th, my total balance will be $600. I do NOT have to pay $600, I only have to pay $500. The $100 I charged on the 16th will show up on July's statement and it will NOT be charged interest.

There is NO reason to pay an extra $100 30 days before it is due. That money stays in your account earning about 8 cents of interest. You pay it in July when they ask for it.

I have been paying statement balances for 17 years and never paid a penny in interest. There is no good reason to pay money before you have to when it could be doing something else more useful elsewhere.

Well said Badger. Pay the statement balance in full and on time every month and you'll never pay a cent in interest.

[jpg7n16]

Originally Posted by greenskeeper

are you thinking of "minimum payment"?

The OP sounds like he/she is asking about the statement balance (for the previous month) versus the current balance.

Yes I was. I misunderstood the question. Oops!