Credit Card Surprise

Thought you should know!

I got a bit of a surprise today when I discovered that my credit card finance charges were not calculated the way I thought they were. I suppose it makes sense for the credit card companies to come up with a charging system that ends up costing you more than an intuitive system would. Just in case you may have to run up a credit card bill in the near future, here's my story:

I started school in January, but I apparently just missed the pay deadline for the end of January, so I wasn't going to get paid until February. On top of that, I had some deposits to put down on my apartment, as well as some tuition and fees I had to pay in order to register for classes. In other words, I ran up some credit card bills. So I tried to pay it all off while smartly using my credit card.

This is how I thought the credit card worked: I run up bill, I get a statement. I pay most of statement off. Bank charges me interest on what I didn't pay off. Nice, simple, straightforward.

But I paid $900 of my $1300 statement before the due date--leaving $400. At my 9.9APR I figured that would give me about $3.30 in finance charges, which I could totally handle, so I was surprised to find a finance charge of $18 on my account (not bad, but considerably more than I expected). So of course I called my bank this morning to sort stuff out. After talking to a representative for a little while, I realized that I was definitely wrong, but I still wasn't sure how it all worked, so I asked to talk to someone who could explain it to me.

And here for posterity's sake is how it actually works:
If you pay your bill off completely, there's no charges (but you already knew that). If you don't pay all of your bill, they base your finance charge on an average daily balance of your bill. They just magically make your average daily balance zero if you have no balance at the end of the month. So in the end, if you pay all of your bill off except one penny, you will be charged nearly the same amount as if you paid nothing!

That is pretty much unbelievable to me, and I'd be pretty mad, but I do understand that the company is basically letting me use their money for free. This is how they pay for it. I just didn't realize it was so unbalanced between people who pay off their bills and people who don't.

So the moral of the story is: don't wait until the due date to pay! Unless you're going to pay it all off, in which case, you should wait until the very last moment to pay and take the credit card companies for all they're worth!!