How do you bring a credit card back into no-interest mode after making a less-than-full payment?

Question

It is well documented that most (all?) U.S. Credit Cards don't charge any interest if you pay the bill in full every month. I'm curious how all cards arrived at this common rule, but that's besides the point of my question.

Now suppose you pay only half of the card's balance by the due date one month, because you had some money unexpectedly held up somewhere that you were expecting to have available to you (very timely for my example: let's say you're a government employee impacted by the shutdown, and you made some holiday purchases planning to pay them off with your next paycheck, and you don't have an emergency fund).

And now suppose your cash gets released to you one week after the due date (here my example is not applicable as the shutdown is still on).

Also suppose you use this credit card frequently (every day).

I realize I can stop interest charges at a point in time (not retroactively) on the already outstanding balance simply by paying it off. However, what is the optimal strategy to stop the interest charges on the current month's upcoming expenses (with 3 weeks remaining on the month)?

It is unclear to me whether:

1. You can just payoff the remainder of the original due amount and move on, or

2. You have to zero out the current balance (original statement amount plus the last 7 days' worth of purchases), or

3. You have to zero out the balance AND stop using the card altogether until the next statement date.

4. The only way to avoid it is to overpay the card by the projected amount of the next 3 weeks' expenses, creating a credit balance that gets depleted by the end of the cycle.

Answer 1

I realize I can stop interest charges at a point in time (not retroactively) on the already outstanding balance simply by paying it off. However, what is the optimal strategy to stop the interest charges on the current month's upcoming expenses (with 3 weeks remaining on the month)?

Pay the whole entire existing balance to zero and stop using the card.

You need to check with your bank but, far and away the most common methodology of calculating interest would require you to pay the statement balance to zero for two consecutive statement periods.

You pay $500 of a $1,000 statement. The remaining $500 balance, and all charges occurring after your due date, will now accrue interest. If you pay the whole balance on the 5th day after your due date you will still have had a balance for 5 days that will be captured in your average daily balance calculation for interest charges. If you stop using the card and pay the full balance you at least turn off the interest spigot but you will still receive a statement with a charge for the interest that accrued in those first five days. This is the fastest way to stop interest charges.

Alternatively you can simply pay the statement balance for two consecutive periods.

This is how almost all national banks calculate interest. If you happen to use a credit union or smaller regional bank, some have more generous interest terms where the interest calculation will include only the 5 days of the statement period where you carried a balance and won't include charges for the remaining days of the period but you should check with them.

There is no harm in calling your bank and asking how things work. If you've been a good customer for a sufficiently long time ask for a lower rate. I once needed to make a large purchase, so I called all my relevant banks to see if any would play ball and one (Discover) agreed to give me 0% on anything charged in the month. Tons of banks have provisions to delay or suspend interest for deployed military and I know Ally is directly advertising to government employees affected by the shut down. Just call the bank(s) and see what's possible.

Answer 2

Let me just add one thing to the above answers. While you are in that window between your partial payment and your full payment. Remember you are paying interest on new purchases day one. So I try and run a zero balance until that period is over with and use a different card.

Which leads me to another point. If you are running a balance then pay your credit card when you have money do not wait for the bill. You are accruing interest daily.

Mark

Answer 3

If you are carrying a balance on your credit card (for whatever reason) and so the most recent statement that you received included finance charges -- say $X as (previous balance plus purchases made that month) and $Y as (interest for that month plus fees and other charges) for a total statement balance of $Z = $X+$Y -- then paying off that statement balance $Z$ in full on or before the due date shown on your statement does stop interest being charged on your balance from that payment day forward. But, interest has been accruing in your account on that $Z (as well as on any purchases made/cash advances taken etc after the statement closing date) and this interest is not shown anywhere on your credit card website. You will see purchases made since the last closing date as adding on to your balance as shown on the credit card company's website, and if you are making a payment through the website, you do have the option of paying off the last statement balance or the current balance (or the minimum required payment etc) but none of these numbers include the accrued interest which will not be included in your current balance until the next statement is cut.

So, it takes two cycles of paying the monthly statement balance in full by the due date to get into the state of nirvana where the "Finance Charge" line on your monthly statement shows 0.

Answer 4

Every card I have ever used clearly states that if you pay the full balance for two consecutive statements then you will be considered to have paid off all charges and there will be no more interest charges if you continue to pay the full amount.

Answer 5

It depends on whatever your card's terms and conditions are.
In most cases you can pay off the 'last statement balance' and have no more interest charges.

So say you have a balance of $1000, you pay off $500, keep using the card. Your next statement has a balance of $1000 including a finance charge. Now you keep using the card and just before the statement comes out your balance is $1500. If you pay off the whole $1000 (last statement balance) this time, you won't have a finance charge on the next bill, even though you maintained a balance the whole time. If you can only make the min payment, then end up with $1500 on the next bill, you'll just have to pay that off.
I think there are also cards that make you pay off 2 bills in a row. I think these 2 cases are the most common (with the former being by far the most common for credit cards).

Answer 6

Pay the unpaid half the day after your money is released.

There's nothing stopping you from paying making payments on the card every day except convenience and habit. In the Internet Era, it's trivially simple to log onto the CC bank's web site and make a payment whenever you want; I pay it every Sunday evening, for example.