Interest charged even though you pay off your credit card in full by the due date?

Are you being charged interest on your credit card even though you pay it off in full and by the due date?

I recently received a question from a person because even though they paid of their credit card off each month in full and by the due date, they were still being charged interest. Whilst outside the scope of what I do I decided to investigate since I have also fallen for this credit card trap so I thought I would share my experience with others.

There are a few gotchas with credit cards.

1. If you miss paying off a credit card by the due date then you get charged interest on the next statement and it applies to all purchases made since the start of the statement period.

Miss paying off your credit card in full also affects how you are charged interest on your purchases from that point on.

2. If you don't pay off your credit card in full then every purchase from then on incurs interest at the going rate. There is no interest free period on purchases when you owe money on your credit card.

The trap however is if you pay the full amount due stated on the statement, you are not paying off the full amount since some interest has already been incurred between the statement date and when you pay. You always receive the statement a few days after it is printed.

In order to stop being charged interest you need to have your credit card owing you money at the next statement end date.

One way to do this is to keep the card owing you money for the entire following month. If you don't want to pay interest in your purchases during the month this is the way to go.

Another way is just before the statement end date check the balance of the credit card and pay off the credit card plus a bit more so that at the next statement the credit card owes you money. You may end up paying some interest on purchases using this approach.

Another way is to use another credit card until the credit card is paid in full and no interest has been charged. This may take two statement cycles.

If all you ever do once you miss paying off your credit card in full is to pay the amount due, you will continue to pay interest on your credit card.

I hope this experience helps others to tame their credit card. - Kelvin Eldridge

NOTE: This information should not be considered as financial advice. It is for general information only.