Masterclass, Money

Credit Cards – An Expensive Lesson

Published on July 9, 2015 5:54 pm, by

I’ve always known the golden rule, maybe the only rule for owning a high interest, up to 55 days interest free credit card.  Pay the balance off in full by the due date.  A couple of months ago I had a very high spending month.  One of those uncontrollable months, slightly out of my control, the way it can happen when you have 3 expensive toys (AKA children). 

My dilemma at the end of the month was this – do I draw $1,200 out of my savings account, the one that I never ever touch OR do I for once do the unthinkable and pay the majority off my card, leaving $1,200 to pay in 3 days when I come in to funds.

Being a long-term bank worker and general smarty pants when it comes to bank products and my finances I decided what the hell.  What’s 20% interest on $1200 over my statement cycle…. I’m smart enough to know they’ll backdate the interest on $1,200 back to when the purchase was made.   $20, right?

Wrong!!  That’s not what happens at all.

Not only did I lose my interest free period for the next statement cycle on every purchase – the full amount I spent that month – I also lost my interest free period until the next time I paid my statement balance in full by the due date.

How does it work?
As soon as I didn’t pay the full balance on the due date I lost my interest free status.  This meant that for the next statement cycle, interest was calculated on the daily balance of the card, with an interest charge at the end of the cycle.

Even though the full amount was paid by the next due date there was further interest charged – residual interest.  This was interest calculated between the statement closing date and the payment date.  The interest free period kicked back in at this point.

So by not paying my full amount on time, instead of having 55 days interest free I was charged 55 days (approx.) of very high interest.  In essence, paying all but $1,200 of my balance cost me $125.

And what did I learn?
In a full circle, I learnt what I always knew – always pay off the full balance on the due date.  And I learnt why.  And next time I’ll be digging in to that savings account because boy did that sting.

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Jen is an experienced banking professional who loves wine, coffee, finding a bargain and of course her three beautiful children. Since Jen's first budget led her to buy a home at 20, Jen has passionately helped others to make better decisions with their money.

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