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Had an interesting discussion with a friend last night who mentioned something I was not aware of concerning the amount of interest a credit card company may charge per month.

It basically goes like this: let's say you make a $1000 charge to your credit card and decide to pay back $999 within the 21 day grace period, leaving a $1 balance on your card.

Once you carry over your 21 day grace period, the credit card institutions will charge you interest on the FULL $1000 rather than simply the $1 remaining, even though $999 of the balance had been paid.

Can someone verify whether this is in fact true? I was not aware of this stipulation...

Thanks,
Dan
 

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It depends on which method the card issuer uses to calculate interest: the average daily balance, or the daily balance method.

Here is a good Canadian link explaining the different methods.

You should check your card agreements to see which method is being used.
 

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If you have to ask how they figure out the interest-you are in trouble. You MUST pay the full balance each month or heaven help you.
 

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If you have to ask how they figure out the interest-you are in trouble. You MUST pay the full balance each month or heaven help you.
We pay our cc off in full every month and I too would ask the same question; I would not have to ask, I would want to ask because I think it's a very smart move to become more knowledgeable about credit cards and other things that could affect your financial situation.
 

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+1 to Addy's response.

This is a question about the mechanics of CC interest which is of interest whether or not you ever carry a balance or not.

At the very least, it allows you to become more informed about the penalties associated with carrying a balance.
 

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Most, if not all credit card companies will charge interest as of the day the transaction posted when the balance is not paid in full by the due date. Some companies even go as far as charging interest on the following month's balance as well.
 

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OK I was a little harsh. However, if you pay it off every month why would you care how they calculate something you will never see. I guess if you screw up or something you can check to make sure the amount is correct? Paying it off every month is the first rule of good financial management.
 

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OK I was a little harsh. However, if you pay it off every month why would you care how they calculate something you will never see. I guess if you screw up or something you can check to make sure the amount is correct? Paying it off every month is the first rule of good financial management.
Some people want to be more knowledgable about their finances. I see nothing wrong with that, in fact I wish more people know the policies behind their credit cards, loans and mortages. Far too few people read their policies and even less understand them.

Besides, even the best screw up occasionally, miss a payment deadline or something similar, so it's best if everyone using a credit card knew how their card worked.
 

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Yes, but read the fine print

My husband and I always pay the balance each month on our credit cards. One month we paid a few days late and were willing to pay the penalty for that month or so we thought. A couple of months later I noticed an extra fee attached on our statement. It was only for a few dollars but it was not something we had bought. I called the card company and was told that because we were late for a payment a few months back full interest was being charged on all purchases for the next 6 months. It was sort of a penalty for being late that one month although that is not the way they phrased it. Sure enough they had charged interest the past few months but we missed it because our monthly bills were small. That last month we had been on holidays and had bought appliances for our house and so the interest charge was large enough that we spotted it. Just a warning. Even when you pay off the balance monthly they have ways to ding you on any small infraction. Of course that policy was written on the back of the statement in very faint print. The kicker was that it was not listed on every statement but on every second one. The monetary amount was negligible but it is this sort of negative billing that leaves a sour taste in my mouth.
 

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OK. That is awful. I would have closed my account. But I guess if you do that you lose your credit rating. So that would be something worth knowing for sure. I stand corrected.
 
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