Did you know that when you fail to pay your monthly credit card statement on time and in full, in your following monthly statement, you are not only charged interest on the portion of your statement that you did not pay, but also on the portion you paid? This seems usurious but is standard credit card bank practice.
Credit cards commonly calculate interest against what they call the “average daily balance.” This takes your balance at the close of each day, then divides the total by the number of days in the payment period.
Let’s say you spend $15,000 over the course of a month. Upon receiving your statement, you promptly pay off all but $1. With an interest rate of 20 per cent, you’d still owe about $150.
That’s a lot of interest for a balance of $1! It was an eye-opener to me and I have since changed my ways. Not being well versed in money matters, I had always assumed this was common knowledge. But I was wrong, as I learned thanks to a short article I read a while back. Wanting to be sure, I contacted my own credit card bank, which confirmed that this was indeed the practice, i.e. (it bears repeating!) when the debtor does not pay the credit card creditor’s statement on time and in full, they will be charged interest on the average daily balance, not just on the portion left unpaid.
This information is no doubt couched somewhere in our contracts but I was unable to find it. There are ways to pay off credit card debt at a lower interest rate (e.g. line of credit) and to start anew. Being debtless is bliss! I hope this helps anyone struggling with credit card debt to find it!