1

Let's say my credit card payment is due the first of each month. As of Jan 1 2013, my credit card balance was $1000.

So, as I understand, if I want to avoid paying interest on this debt, I'd need to pay $1000 towards that debt by Feb 1, 2014

If I pay $1000 towards that debt on Jan 2, 2014 (during the re-payment period), but then charge $2000 on the card, will I face any interest for any balance exceeding $1000, i.e the balance, for the Feb 1, 2014 due date?

2 Answers 2

2

In the US, if your monthly statement was issued by the credit card company on January 1 and it showed a balance of $1000, then a payment must be made towards that balance by January 25 or so, not February 1 as you say, to keep the card in good standing. The minimum payment required to keep the card in good standing is specified in your monthly statement, and failure to meet this requirement can trigger various consequences such as an increase in the interest rate charged by the credit card company.

With regard to interest charges, whether your purchase of $2000 on January 3 is charged interest or not depends entirely on what happened the previous two months. If you had paid both your monthly statements dated November 1 and December 1 of the previous year in full by the their respective due dates of November 25 and December 25, and the $1000 balance on the January 1 statement is entirely due to purchases (no cash advances) made in December, then you will not be charged interest on your January purchase of $2000 as long as you pay it off in full by February 25 (the charge will appear on your February 1 statement). But, if you had not paid your December 1 statement in full by December 25, then that $1000 billed to you on January 1 will include

  • purchases made during December

  • finance charges on the unpaid balance from the previous month

  • plus finance charges on the purchases made during December.

The finance charges will continue to accumulate during January until such time as you pay off the bill in full (these charges will appear on your February 1 statement), hopefully by the due date of January 25. But even if you pay off that $1000 in full on January 25, your charge of $2000 on January 3 will start to accumulate finance charges as of the day it hits the account and these finance charges will appear on your February 1 statement. If you paid off that $1000 on January 10, say, then maybe there will be no further finance charges on the $2000 purchase on January 3 after January 10 but now we are getting into the real fine print of what your credit card agreement says. Ditto for the case when you pay off that $1000 on January 2 and made the $2000 charge on January 3. You most likely will not be charged interest on that $2000 charge but again it depends on the fine print. For example, it might say that you will be charged interest on the average of the daily balances for January, but will not be charged interest on purchases during the February cycle (unless you miss the February 25 payment and the whole cycle starts all over again).

As a general rule, it takes two monthly cycles of payment in full by the due date before one gets into the state of no finance charges for new purchases and effectively an "interest-free" loan of $2000 from January 3 (date of purchase) till February 25 (due date of payment). Matters become more complicated when cash advances are taken from a credit card which are charged interest from the day they are taken but don't trigger finance charges on new purchases or the so-called "zero percent balance transfer offers" are accepted.

1

The best answer to this is: Read the fine print on your credit card agreement.

What is common, at least in the US, is that you can make any charges you want during a time window.

When the date comes around that your statement balance is calculated, you will owe interest on any amount that is showing up as outstanding in your account.


Example...

To revise the example you gave, let's say Jan 1. your account balance was $0. Jan. 3rd you went out and spent $1,000.

Your account statement will be prepared every XX days... usually 30. So if your last statement was Dec. 27th, you can expect your next statement to be prepared ~Jan.24 or Jan. 27.

To be safe, (i.e. not accrue any interest charges) you will want to make sure that your balance shows $0 when your statement is next prepared.

So back to the example you gave--if your balance showed $1,000... and you paid it off, but then charged $2,000 to it... so that there was now a new set of $2,000 charges in your account, then the bank would begin charging you interest when your next statement was prepared.


Note that there are some cards that give you a certain number of days to pay off charges before accruing interest... it just goes back to my saying "the best answer is read the fine print on your card agreement."

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .