# Interest charges on balance transfer when purchases are involved

I just finished reading a great explanation on how interest is determined and how to avoid. It was stated the way to avoid interest is to pay off your full statement balance each month.

Example: - transfer \$1000 on April 30th at 0% APR for 6 months - make \$500 in purchases by end of billing cycle ending on May 21st as shown on statement - statement says balance is \$1500 with minimum payment of \$75 due by Jun 18th - I make payment of \$600 by Jun 18th to cover minimum payment and purchases

Next statement comes and shows an interest. When I call to find out why they say because I failed to pay entire balance.

So, my question is why do you have to pay off the amount of a balance transfer if you were given a 0% APR for 12 months after the first month just because you made purchases that you are paying off in addition to the minimum payment?

What is the benefit of doing a balance transfer if I'm being charged interest on my purchases because of the balance transfer?

I was told to stop using the card for purchases and I'd stop getting charges interest. I understand what was explained to be, but it just doesn't make common sense.

Its called a "Grace Period" and you are not paying interest on the 0% BT, you are paying interest on the amount you spent in purchases

If you do not pay your balance in full by the due date your grace period ends. This means that you have to pay interest on the purchased amount from the day it is made. This is why when you do a balance transfer the card should be put in the Sock Drawer until the BT is paid off.

In order to restore the grace period you must pay the balance in full and the grace period will start during the Next Payment Cycle.

Lets Assume:

1. Cycle starts on 1st.
2. Balance Transfer \$110 on the 10th.

Statement cuts on the 1st and Due date is the 20th.

• you make the minimum payment of \$10 Balance now is \$100

1. You make a purchase of \$50 on the 10th after the statement from above

Since you have a balance of \$100 from the previous statement and a new purchase of \$50.00, when the next statement cuts you will have to pay interest according to the terms on the \$50.00 portion.

In order to get the grace period back you will have to pay in full and wait for the next cycle

In case I did not explain it well here is a quote from creditcards dot com website:

The cost of carrying a balance
This is because carrying a balance of any size into the next billing cycle means there is no grace period on your purchases during that cycle. The card company will begin charging interest on your purchases the day you make them. So leaving even \$1 in unpaid balance on your card will cost you considerably more than the measly finance charges on that dollar.

To see how this works let's consider an imaginary card user named Sally. She's so happy she got a new credit card that she charges \$1,500 in purchases on the first day of her monthly billing cycle. After the cycle ends, Sally pays off the entire \$1,500 by the due date, wiping her balance to zero. As a result, her purchases during the second month are also free of interest. She has used her grace period wisely to avoid finance charges.

What happens if Sally leaves just \$1 of her balance from the first month unpaid? That \$1 begins to accrue interest starting the first day of the billing cycle. It's just \$1, so the interest is not a big deal -- but because she used up her grace period without paying off her entire debt, her new purchases during the second month also start to get hit with interest charges immediately, starting the day of the transaction. Assuming she makes another \$1,500 in purchases at the average annual interest rate of about 13 percent, that means \$16 in finance charges for the month. If Sally repeats this pattern, the interest costs add up to \$190 over the course of a year.

• I understand your answer, but it doesn't answer why this would occur if Sally pays her purchase balance each month in full. I called my other financial institution and asked them how this scenario would work if I used their card and was told it would work as I understand. So, the charging of interest on my purchases each month because I have an unpaid balance transfer is their choice and slightly deceiving. I'm sure there are other consumers like me reading their terms that say pay your balance in full doesn't mean the balance transfer because what would then be the purpose. Commented May 1, 2016 at 13:03
• If have a balance from the balance transfer the is a balance just like any other just at a different rate. It can seem deceiving but it really is not. Depends what you thought it meant before you really understood it
– Eric
Commented May 1, 2016 at 15:06
• And yes many incorrectly think that but it unfortunately is their fault for not understanding the terms. It is spelled out in the terms just not well tied together with good examples for the regular person to understand
– Eric
Commented May 1, 2016 at 15:08
• I have given your answer a check because it is detailed and understanding of us non-financial people Commented May 2, 2016 at 12:10

The 'common sense' in it is that they want the maximum money from you while still suggesting to a quick read that you get away free. Their target is not to make you happy, but to make money of you.