How to calculate credit card interest with respect to grace period transactions?

If my credit card currently has a \$0 balance, and I make a transaction and pay it back within 25 days, I won't pay any interest, even if I had a balance and was paying interest previously. Is that correct?

Example:

• I have a \$5000 balance that I'm currently paying interest on.

• I pay back the full balance from my most recent statement, including interest.

• My balance is now \$0.

• I charge \$4000 on my card.

• I pay back the \$4000 within 25 days.

Will I incur an interest charge? If so, any good way to avoid it, short of waiting?

I realize credit card terms vary, so I'm looking for a general answer (assuming most cards use the same method to compute interest charges).

• money.stackexchange.com/questions/6598 clarifies this. If your balance drops to \$0 between the closing date and the due date, you won't pay interest. However, a drop to \$0 outside that time period doesn't guarentee zero interest.
– user1731
Commented Feb 28, 2011 at 20:43

You should check your credit card balance rules. Some cards use something that is called "average daily balance" which means they calculate the average of balances you held over one or two billing cycles and charge interest on that. So the fact that your balance is \$0 doesn't mean you won't pay any interest, at least until you keep paying it in full for two cycles.

I would advise just calling the customer service and asking, they have to disclose this information to you.

• Thanks. This was exactly the thing I was worried about, and exactly the answer I needed!
– user1731
Commented Dec 13, 2010 at 13:53
• If you have a card that does two cycle billing, I recommend cancelling it and finding another card. That's what I did in the same situation. Commented Dec 13, 2010 at 17:34
• Thanks, @AlexB. It looks like two cycle billing is illegal now, but it does explain why I've been previously charged interest even after getting a 0 balance. And that page links to the different ways credit cards compute interest, which is VERY helpful!
– user1731
Commented Dec 13, 2010 at 19:23

Many credit cards have a 21 day period before interest begins to accrue, but otherwise you are correct in general (see Stasm's answer for an exception). I have had my Visa for three years and have never paid interest, because I always pay it off within 21 days of my oldest unpaid-for purchase.

• I believe until recently it may have been possible for interest to be charged in some similar scenarios, such as when you pay the old balance AFTER the new purchase. Some card companies would count your payment towards the new purchase instead if the old, so they could collect more interest on the old. This is now illegal in the US. Commented Dec 12, 2010 at 18:01

Interest accrues based on average daily balance in most cases, so you keep accruing interest until the balance is zero. In my experience, once you are accruing interest, you will continue to pay interest on new spending if you are accruing interest on any day of the billing cycle.

Thanks to everyone who answered. It looks like the average daily balance is how many credit cards do it, but I'm confused as to how this interacts with the grace period. I'm quoting what my credit card company says, but am not sure I understand it: