Do I not understand credit cards?

Raqie

Okay, so I decided to take advantage my bank's offer of a no interest for 6 months card. I paid the minimum every month and the month that it was going to switch over to interest I paid off the balance.

More specifially, the balance of $1410.04 was due on 7/5. $1400 was paid on 7/3 and the remaining $10.04 ended up being posted on 7/6. (A day late I know, don't know if that plays into it even though it was such a small amount.)

So my new statement comes (on 7/16) and there is a finance charge of $11.95 on it. Apparently $777.77 was subject to the finance charge. This just doesn't make sense to me.

I know I must be looking at something wrong because something similar to this happened on another one of my cards.

Any explanation would help, thanks.

Tomanta

Check the terms and conditions to see how finance charges are calculated. Rarely is it the balance at the time the statement is printed. One common method is the "average daily balance" - they take the balance at the end of each day in the period, add it up and divide by the number of days in the period to get the average balance for the month and that is what they charge interest on.

This works in their favor because the balance tends to go up all month until the last couple of days when a payment is made. The only way to avoid finance charges is to pay the entire balance from the last statement BEFORE the due date - and I mean the /entire/ balance (I once received a finance charge because I didn't pay $0.20 of the previous months balance).

supabeast

Making a late payment usually voids 0% interest offers and immediately pushes you up to a high interest rate. That’s how banks make money off those cards.

Scooter

Really, it's just not a good habit to get into, paying anything but the full amount every month.

Everywhereasign

Very often the way it works is you PAY no interest for 6 months. If you aren't paying off the balance it still is added up and you have to pay it at the end of the six months.

In other words, the banks sucks. They like your money and you always have to read the fine print.

Either dig out your contract and spend an hour or so Googling the words you don't understand, or call the bank and ask them. They can tell you exactly what happened.

In the future, you're looking for a "No Interest for 6 months, AND No Interest Accrues" It's that second part that they get you on.

Raqie

I do normally pay in full each month for my other card. The $10.04 that got posted the day after was a mistake. If that's what caused it then I guess I can understand that.

phamtq

I do that all that time with big purchases. The way to make it work for you is to divide the total cost into the number of months they offer you minus one month. So:


Payment per month = total owed / (months to pay back - 1)

What does this do? Well, you're making more than the minimum payment (a lot more) so you avoid those fees that say they can charge you for only paying the minimum to maintain the account (or whatever bull they want to say). Next, it prevents them from lumping all the back interest because you didn't pay by what they think is the correct day even though you still have a few weeks to pay.

If it's a credit card from Magnolia HiFi or whatever, just close the account when you're done. Having too many open account (that aren't old) screws up your credit score.