Don’t Let Residual Interest Wreck Your Credit Card Payoff Plan

Today is the day you pay your outstanding balance on your credit card.

Congratulations! But if you wait until you receive your statement in the mail, you will have to deduct more than the balance on the list before being released from the credit card company.

Why? Because of a small (or not so small) thing called arrears of interest.

Outstanding interest – aka past interest – is the amount of extra interest you receive between the billing date and the payment. If you’re making a significant balance in a final fight, the interest in next month’s statement could come as a huge surprise.

And it can be especially painful if you don’t bother to open next month’s statement because you think the balance has already been paid.

Here’s how you can avoid paying interest – and avoid giving yourself more than a dollar.

What is outstanding interest?

Read the fine print in your credit card statement (Having fun?)

To understand how this is possible, we first need to learn some of the terms and how they apply to your credit card account:

  • Billing cycle: The time period between your credit card statements – usually about 30 days – depends on the issuer. If your billing cycle starts on the 15th of the month, for example, it will most likely end on the 14th of the following month.
  • Account Closing Date: Last day of the billing cycle.
  • Due date: The day the last billing cycle is due. If less than the full amount is paid by the due date, interest is charged on the remaining amount and is included in next month’s billing cycle.
  • Full payment amount: Accumulated amount including your interest payable. This number will increase daily if you have a balance. (PS This is different from the “current balance” you will see on your credit card statement – unless you pay your balance every month.)
  • Discount period: The period between the account closing date and your due date – at least 21 days, if your credit card company offers it. If you pay your balance every month and do not receive any cash, credit card issuers will not charge interest on your purchases during this period. However, if you take out a balance from each month, you lose that repayment period on any part of the balance that you did not pay in the previous month and are immediately charged interest.

What does this mean for you? We say you have been paying off your credit card balance for a few months now. You receive a statement in the mail stating that your current balance is 1,000 and that you are willing to pay it. You go online to make the full payment, but you schedule it 10 days later because you are waiting for the payday.

When you receive the statement for the next month, you will see that you were charged interest on this 1,000 for 10 days between the account closing date and your payment (and may be included in this statement). For some extra day mail).

It may be only a few dollars, but if you do not pay it, it will continue to charge interest, you will be charged late and your credit score will affect the late (or not) payment. ۔

How to pay outstanding interest.

The best way to avoid paying interest is to pay off your credit card balance every month. (If you are new to the whole credit card, check out this guide. How to use a credit card without going into debt.)

However, if you are close to paying your card after taking the first balance, the best way to avoid outstanding interest is to call your credit card company. Ask the issuer for the full payment according to the date of receipt of payment – remember that you may be a few days after the date of sending the payment.

Pro tip.

Even if you plan to close the credit card, keep the account open for a few months so that you continue to receive communication about any interest or fees.

If there is a question as to whether the company will receive your payment after the due date (consider: mail delivery or online payment delay), you may want to add some extra amount to the specified payment amount. However, dealing with higher payments is much easier than dealing with the second month of interest accumulation.

To stay on the safe side, check your statement for at least the next two months to make sure you are still not taking the balance or charging extra interest. At this point, you can start your debt-free happy dance.

Tiffany Wendell is a staff writer / editor at Connors The Penny Hoarder. Read on His bio and other work here., Then catch it on Twitter iff TiffanyWendeln.