Don’t let residual interest ruin your credit card payment plan

Today is the day you pay the remaining balance on your credit card.

congratulations! But if you wait until you receive your statement in the mail, you will have to pay additional money beyond the listed balance before you are free from the credit card company.

why? Because of too little (or not too little) of a thing called residual interest.

Residual interest – also known as delinquent interest – is the amount of additional interest that accrues between the date of your bill and your payment. If you’re paying off a large balance in one last stroke, the interest pending on next month’s statement may be an unwelcome surprise.

And it can be especially painful if you don’t bother opening the next month’s statement because you think the balance has already been paid.

Here’s how you can avoid residual interest — and save yourself from handing over a dollar more than you absolutely need.

What is the remaining interest?

Read the fine print on your credit card statement (fun, isn’t it?), and you’ll notice a sentence that reads something like this: Paying your last statement balance might not pay your full balance.

To understand how this is possible, we first need to know some terms and how they apply to your credit card account:

  • Billing cycle: The time period between your credit card statements – usually about 30 days, depending on the issuer. If your billing cycle starts on the 15th of the month, for example, it will likely end on the 14th of the following month.
  • Account closing date: The last day of the billing cycle.
  • due date: The day when the previous billing cycle is due. If any amount less than the full amount is paid by the due date, interest is charged for the remaining amount and added to the next month’s billing cycle.
  • Full payment amount: The total amount you owe, including accrued interest. If you have a balance, this number will increase daily. (Note: It’s different from the “current balance” you’ll see on your credit card statement – unless you pay off your balance each month.)
  • The grace period: The period between the account closing date and the due date – a minimum of 21 days, if your credit card company offers it. If you pay your balance in full each month and don’t withdraw any cash advances, credit card issuers will not charge interest on your purchases during this period. However, if you carry a balance month to month, you will lose that grace period on any portion of the balance you didn’t pay in the previous month and interest is charged immediately.

What does this mean for you? Let’s say you’ve paid your credit card balance for a few months. You get the statement in the mail that your current balance is $1,000 and you are ready to pay it off. You go online to make the payment in full, but you schedule it 10 days later because you are waiting for the day of payment.

When you get your next month’s statement, you’ll notice that you were charged interest on the $1,000 for the 10 days between the date your account was closed and your payment (and possibly two more days for the time it took the statement to arrive in the mail).

The amount may only be a few dollars, but if you don’t pay it, interest will continue to accrue on that amount, you will be charged late fees and your credit score will be affected by the late payment (or not).

How to pay the remaining interest

The best way to avoid residual interest is to pay off your credit card balance each month. (If you’re new to the whole credit card business, check out this guide to learn how to use a credit card without getting into debt.)

However, if you’re about to pay off your card after you held a previous balance, the best way to avoid residual interest is to contact your credit card company. Ask for the full refund as of the date the issuer receives the payment – remember that it may be a few days after the payment was sent.

professional advice

Even if you plan to close the credit card, keep the account open for two months so that you continue to receive communications about any interest or fees you may be owed.

If there is any question about whether the company will receive your payment later than the specified date (think: mail delivery or online payment delay), you may want to add a little extra money beyond the specified payment amount. After all, it is much easier to deal with overpayment than for another month of accumulated interest.

To be on the safe side, check your statement for at least two months to make sure you’re still carrying a balance or extra interest has been charged. At this point, your debt-free happy dance may begin.

Tiffany Wendlin Connors is a writer/editor at The Penny Hoarder. is reading Her biography and other works are here, then follow her on Twitter @TiffanyWendeln.

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