Released: October 23, 2008

The ABCs of credit card residual interest

Source: Amy Buttell Crane, CreditCards.com

When you pay the full amount on your credit card statement and don’t add any new charges, your balance is zero, right? Not necessarily. Welcome to the world of residual interest—where grace periods vanish and balances aren’t exactly what they seem.

Residual interest accrues when your credit card issuer charges interest during the period between when your statement is issued and the date you pay your bill. That means that unless you call your credit card company and ask exactly how much it will cost to pay your bill in full on the date you expect your payment to arrive—the so-called “final payoff amount”—you will still owe interest on your next bill, even if you make no further purchases with your card.

This happens to consumers who keep a balance on their cards. If you pay off your balance at the end of each billing cycle, you won’t pay any interest. However, if you fail to pay off your balance in a given month, that’s when residual interest can rear its ugly head.

Read Full Article: The ABCs of credit card residual interest