But Theres One Last Confusing Bit: When Your Statement Starts And Ends
Sometimes, the first day of your statement period, and the 55 days, isnât actually the first day of the month. It might start half way through depending on your statement period.
So, if your statement period starts on 15th of the month, youâll have 55 days interest free from the 15th.
Your statement period and due date are both included in your monthly statement so itâs a good thing to keep an eye on so you know what cut off date in the following month you need to pay your credit card by so you donât pay any interest.
Itâs also important to know rules changes, special conditions apply and different banks may apply additional or different rules for their credit cards. For example, if you have a balance transfer on your card you typically wonât receive any interest free days at all.
How do you keep on top of your credit card purchases? Let us know over on Instagram, Facebook or Twitter.
Default And Late Payment Charges
Your statement tells you the date by which you must make your payment . Depending on how you pay, it may take several days for the payment to reach your account so make sure you pay in time. This is important because any interest you are being charged will be applied to the balance at the due date.
If you pay less than the minimum amount you will be counted as behind with payments and may be charged default or late payment charges. Interest will be added on these charges as well as on your spending, so getting behind can be costly. It might help to set up a direct debit from your bank account for the minimum amount each month to avoid being late with your payment. You can always pay more on top if you have it.
Avoid Cash Advances If Possible
A standard cash advance is withdrawing cash from your credit card. But since this isn’t considered a purchase, interest-free days donât apply. This means interest starts to add up from the moment you make the withdrawal.
Cash advances should be a last resort or in case of an emergency. If you need cash, itâs a way to get it if youâre stuck. But remember, the interest charged for cash is usually quite high, so try to pay it back as soon as possible.
Other cash advance examples include:
- cash out from your credit card account at an ATM, or over the counter
- money transferred out of your credit card and into another account
- using your credit card for gambling
- bills paid with your credit card over the counter at another bank or at a post office
- travellerâs cheques or gift cards.
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How Can I Avoid Or Pay Down Interest Charges
You can usually prevent interest charges altogether on your credit card. The simplest way to never pay interest and maintain your monthly grace period between statements and payment due dates is to simply align your payments with all due dates, statement periods and policies associated with your credit card. Never carry any balance and youll avoid interest altogether.
Calculate Your Average Daily Balance
Remember, your interest is assessed on your average daily balance. So you have to figure out what that is. To do so, you’ll have to look back at your statement.
Start with the unpaid balancethe amount of money you carried over from the previous month’s statement. Next, go through your statement to determine what each day’s balance was. Note: Your credit card won’t tell you your daily balances for the month you’ll need to do it yourself by adding or subtracting individual charges for each date of the billing cycle as they appear on your statement. Add up each daily balance amount and divide it by the number of days in your credit card’s billing period. That’s your average daily balance.
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What Is A Line Of Credit
A line of credit is a type of loan that lets you borrow money up to a pre-set limit. You don’t have to use the funds for a specific purpose. You can use as little or as much of the funds as you like, up to a specified maximum.
You can pay back the money you owe at any time. You only have to pay interest on the money you borrow.
To use some lines of credit, you may have to pay fees. For example, you may have to pay a registration or an administration fee. Ask your financial institution about any fees associated with a line of credit.
How Your Payments Affect Interest Charges
If you pay your full monthly balance by the end of every month, you aren’t charged interest.
If you pay the prior months balance in full, then pay less than your full monthly balance by the end of the month, you’re only charged interest on the unpaid portion up until the date you pay it off. To avoid seeing interest charges completely, pay your monthly balance in full by the due date for two consecutive months.
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See The Impact Of Interest Charges
Apple Card1 makes it easy to see how much you need to pay to lower or avoid interest charges2 on your balance.
When you go to make a payment in the Wallet app, Apple Card automatically estimates the amount of interest you pay based on the payment amount you choose.
Interest charge estimates are based on the selected payment, taking into account your remaining balance from the previous month, plus new purchases this month at the time you view your account balance. Estimates don’t include pending transactions, credits received from disputes on purchases made during the current month, or any other purchases or payments you might make before the end of the billing period. The actual interest charge each month appear on your monthly statement.
If you bought a new iPhone with Apple Card Monthly Installments, your purchase is interest-free.3
How Does Interest Work
When you carry a balance from one billing cycle into the next, most credit cards charge interest using the average daily balance method. You can calculate your cards daily interest rate by dividing the APR on your card by the 365 days in a year. Each day you carry a balance, if your card charges interest based on the average daily balance method, youll be charged based on the balance from the day before. The higher your cards APR, the greater the interest youll accumulate each day.
For example, for a credit card with an APR of 17%, the rate per day would be .17/365, or 0.000466%. That daily rate interest is then multiplied by your balance that day. Since the average daily balance is compounded, each day the calculation is based on the day before.
So you have a balance on Day 1 of $10,000, on Day 2, your card would have a balance of $10,004.66, which is what you get when you multiply the balance of $10,000 by the daily rate of 0.000466. This means the balance of $10,004.66 on Day 2 would also be subject to the daily rate of 0.0466%, making your balance $10,009.32 on Day 3 and so on until the end of that months billing cycle.
However, if you pay your bill in full by the end of the month, you wont have to pay any interest at all.
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What If I Cant Pay Off My Credit Card
If you miss a payment date or are unable to pay off a credit card in full because of financial hardship, you should reach out to your bank directly. Especially if you have an excellent or good credit score already, or if this is the first time youve been unable to make a payment on time, your credit card company may be willing to work with you. Reach out before you miss a payment date if at all possible.
If you miss a payment due date but are able to pay off the full amount soon after, you can sometimes request a refund on the interest or late fee charge. If paying off the card looks to be a more drawn-out process, you can also apply for a personal loan with many card companies though in this case you will also want to keep in mind the interest rate of the loan and fully understand what will be different terms than those of your credit card.
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What Would Happen If I Didn’t Pay
If you couldn’t pay for the purchases at the end of the 55 days, you would be charged interest. That interest is calculated from the end of the 31 day statement period, in this case, that’s January 31. In 2019, new legislation meant that banks charged interest from the end of the statement period instead of the date the purchase was made.
So, for the example above, you would start being charged interest on the $95 from January 31 â not January 1 and January 17.
Calculating Credit Card Interest
How your is calculated may vary depending on who you bank with. At CommBank, we calculate interest from the day each purchase is made up until it’s repaid in full. This applies to all purchases unless you’re eligible for an interest-free period.
We calculate interest at the end of each statement period by averaging the amount you borrowed each day and using the rates set out in your contract.
To work out your interest charges, we calculate interest separately for:
- Purchases
For each of these categories, we follow these steps:
If you have a balance transfer or instalment plan, the interest rate we use will be shown when you apply. Applicable interest charges and interest rates can also be found on your monthly .
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Is Credit Card Interest Charged Monthly
Interest is charged on a monthly basis in the form of a finance charge on your bill. If you have a revolving balance, you will lose that 21-day interest-free grace period on purchases. Interest will accrue on a daily basis, between the time your statement is issued and the due date, which means that you’ll have an even larger balance due, even if you haven’t used your card during that month.
Let’s say you didn’t pay off your card in full in August and you have a $1000 balance that carries over until you receive a new statement on September 1. Even though your payment isn’t due until September 30, interest will be accruing every day between September 1 and when you pay it, because you’ve lost the grace period.
That means that even if you pay off all of the $1000 balance by September 30, your October 1 bill will have a balance made up of the interest you’ve accrued on that balance from September 1-29.
Why Shouldnt I Carry A Revolving Balance
Carrying a balance on a card usually forfeits the grace period. This means if you dont pay off a monthly balance in full by the due date, you will not have a grace period for paying off transactions the following month. You will be charged interest on the outstanding balance, as well as all transactions in the new statement period from the date of transaction. In order to regain your interest-free grace period, try to pay off all debt as quickly as possible. Depending on your cardholder agreement, it may take a couple months to earn the grace period back.
To avoid carrying balances into future statement periods, do not wait until exact due dates to pay off balances. If you cannot pay off your full balance by the end of the month, pay as much as you can before the deadline and try to keep paying as often as possible in whatever amounts you are able. Even if your next due date is not until later in the new statement month, if you carry an outstanding balance you will be accumulating interest every day of that month.
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When Does Interest Start For A 0% Apr Balance Transfer
I have made a balance transfer with 0% APR for 12 months and paid only the minimum for 12 months. I wasn’t charged any interest and if I pay the balance in full before 12 months is over, I don’t get charged any interest. This, I understand.
However, it states in the balance transfer offer that “interest starts on the day of transaction”. Does the “interest” in that sentence belong to the promotional 0% APR or my regular 15% APR? In other words, if I don’t pay the balance in full before 12 months is over, do I instantly get charged 15% interest for all previous 12 months? Or is the interest going to start after the 12 month promotional period is over?
You might also want to calculate what APR you actually paid ifyou paid 10% of the outstanding balance for 11 months and a lump sumfor the rest at the end of the 12th and comparethat to the touted 0.0% rate.
How Credit Card Interest Is Calculated
The average rate of interest on credit card debt is approximately 19%, with many as high as 29.99%.
Interest is usually shown as an annual percentage rate and is a fee paid for borrowing money so you can spend money today to purchase things you would normally have to save for.
But they also have made credit readily available and created a culture of buy now and pay later.
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How Interest Rates Work
If youre borrowing money, interest is the amount you pay to your lender for the use of the money.
Financial institutions set the interest rate for your loan. Interest rates rise and fall over time. The interest rate is used to calculate how much you need to pay to borrow money.
The interest rate for your loan is included in your loan agreement. Find out what your financial institution must tell you about interest rates when you borrow.
Align Payment Due Dates
If you have multiple credit cards to pay off each month, it may be possible to request a change in your statement and payment due dates. Usually these are set up at the time of opening a new account. Unfortunately, this means that many card holders have to juggle more than one statement period and pay off different cards at different times in the month. For some people this may work to an advantage depending on what each card is used for and how they choose to fund each payment. For many of us, it may be simpler and easier to remember due dates if our banks align all our statement periods to conclude at the same time each month.
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Preparing For A Rise In Interest Rates
Pay down debt as much as possible to prepare for a rise in interest rates. If you have less debt, you may be able to pay it off more quickly. This will help you avoid financial stress caused by bigger loan payments.
Here are ways to prepare for a rise in interest rates.
- Cut expenses so you have more money to pay down your debt
- Pay down the debt with the highest interest rate first so you pay less money towards interest
- Consider consolidating debts with high interest rates, such as credit card debts, into a loan with a lower interest rate but keep your payments the same
- Avoid getting the biggest mortgage or line of credit that you’re offered
- Consider how borrowing more money could limit your ability to save for your goals
- Find ways to increase your income to help you pay down debt
- Make sure you have an emergency fund to deal with unplanned costs
The Grace Period Lesson
The only way to avoid interest charges on your credit card is to pay your balance in full by your payment due date. Our golden rule has always been to set-up pre-authorized payments from your checking account for the entire balance of your credit card statement on the payment due date. Youll never be late again. Thats the best bank beating strategy out there.
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Assess Your Financial Situation
If you dont have a regular source of income or enough money in the bank to cover your credit card bills, a credit card may not be right for you consider a debit or a prepaid card instead.
If youre the primary card holder, you can check if your credit card is active through CIBC Online Banking®, CIBC Mobile Banking® or CIBC Telephone Banking. The easiest way to review your credit card information is through our digital services.