Trailing Interest Annoyance

[ExFlyBoy5]

As some of you many know, I use the Amex Preferred Cash card for a majority of my purchases and I pay the card in full each month. The manner in which I do this is as follows: Statement closes on 3rd of each month. On the 2nd of each month, I will make a payment for the entire balance. Usually, the balance will be negative or have some depending on pending charges on the 2nd. Now, the last three months, the balance on the card (at statement closing) has been

Mar -140.50
Apr +187.92
May -15.54

And this month, I had an interest charge for 20.78 on a balance of 1556.78. I called CSR to see why this was and she attempted to explain "trailing interest." God help her, I asked her to clarify about 3 different ways and still didn't understand what she was trying to explain. When I thought I got it, and illustrated some real-statement examples, the dates/amounts didn't work. She ultimately said I should just set up auto payments to keep it from happening. I thought I was a fairly smart cookie when it comes to money...but I just can't grasp this and it's quite annoying. They did reverse the charge, but I am not really sure how to keep it from happening again. Is my error paying the balance a day prior to statement closing? I just don't get it.

Sorry...just ranting a little bit. I know there are lots of articles out there that could probably explain it. The AMEX CSR even said that she had to watch a YouTube video when she started working there to understand it and that they get quite a few calls on it. Ugh.

[Aerides]

The key here is "day before closing" - the actual due date on Amex and the closing date are not the same. You're accruing interest in the days usually about 5 days prior to closing.

I don't have the fine print, but it's not as simple as pay before the next billing date to avoid fees. Back it up to a week before each time and you should be fine.

[Meadbh]

Not an Amex customer, but when I pay my Visa bill online, the money leaves my bank account immediately but does not appear on my credit statement for two business days. It's usually best to pay credit cards at least two business days before the due date. I know that during that time, your money is part of the FI's float. Try it and see how it works out.

[ExFlyBoy5]

Quote:

Originally Posted by Aerides The key here is "day before closing" - the actual due date on Amex and the closing date are not the same. You're accruing interest in the days usually about 5 days prior to closing. I don't have the fine print, but it's not as simple as pay before the next billing date to avoid fees. Back it up to a week before each time and you should be fine.

Yep, understand that. Here's what is SO annoying. Here are the two explanations on the bill. They are slightly contradicting. The CSR told me that what I have to do is on the payment due date, I have to pay the "total balance" even if it's only 20 days old. I get that I am not understanding this and it's legal but I think it's not a very friendly way off doing business.

Quote:

Originally Posted by Meadbh Not an Amex customer, but when I pay my Visa bill online, the money leaves my bank account immediately but does not appear on my credit statement for two business days. It's usually best to pay credit cards at least two business days before the due date. I know that during that time, your money is part of the FI's float. Try it and see how it works out.

Here is how I do it. I will look at the balance (and pending charges) on the 2nd of the month. I will schedule the payment that day. On the 3rd, the statement closes and the payment on the 2nd will be on there...always is. The amount due on the 25th will almost ALWAYS be 0 since the balance on the statement is 0 or negative. I repeat that every month, so it's not an issue of a payment not posting in a timely manner. As I understand it, any balance that accrues from the 3rd until the 25th will incur the "trailing interest." The stuff I am learning in law school can be confusing sometimes, but this is way more CONFUSING! I have NEVER had any issues with other cards that I use and pay in the same manner.

[zinger1457]

What's your reasoning for paying off your credit card before the closing date?

[ExFlyBoy5]

Quote:

Originally Posted by zinger1457 What's your reasoning for paying off your credit card before the closing date?

I think this is the key to the issue. I am not a fan of having a credit card balance on my credit report. I know it really doesn't matter, but it's just something I don't like to see. I think it's a left over aversion to when I was in financial distress many, many moons ago.

[Senator]

I pay mine, on the date due, with autopay. The CC company pulls the amount, so if there is an error, it is their fault.

You need to pay the statement balance. Not any amount before the closing date.

[RetireAge50]

You could do both. Keep attempting to do whatever it is you are trying to do and also have it set up on auto pay.

[ChiliPepr]

Her is an article that explains it (not great, but it tries)

Quote:

if you failed to pay for your purchases in full and thus have a balance that's accruing interest, the date your credit card statement closes is the only date when your outstanding balance accurately reflects the amount you owe. Every subsequent day, a hidden amount of trailing interest accrues which will only post on the following statement closing date.To avoid paying interest, you have to pay your balances off on time. To avoid paying trailing interest, you have to pay any interest-bearing balances off early, preferably on the statement closing date, to avoid giving trailing interest a chance to accrue.

When you are paying the day before closing you may miss a purchase (that is my guess how you ended up with the 187 in April). And you probably did not pay that off before the due date.

The way I have always understood it is this:

Let's say your closing date is on the third, and your payment due date is the 23rd. You logon on the 2nd and see you owe $2k and pay it, the payment probably registers on the 3rd since you are not receiving a late fee. Later that day or the next a charge for $187 gets to the credit card company and then the monthly period closes and you get a statement saying you owe $2,187... Since the 2K payment is registered you met your minimum payment for the month. You end up carrying over the $187 to the next period....

Now for the fun part!

Amex calculates and accrues interest every day, but only charges it at the start of the next period if you did not pay in full. So, lets say your interest rate is 24% (2% per month) and you charged that 2k on the first day of your period, you would have accrued 2%*2k or $40 in interest... and because you did not pay off in full they then add in your interest.

To not pay any interest you must make sure you have paid at least the amount due on your bill.

[ExFlyBoy5]

Quote:

Originally Posted by ChiliPepr Her is an article that explains it (not great, but it tries) When you are paying the day before closing you may miss a purchase (that is my guess how you ended up with the 187 in April). And you probably did not pay that off before the due date. The way I have always understood it is this: Let's say your closing date is on the third, and your payment due date is the 23rd. You logon on the 2nd and see you owe $2k and pay it, the payment probably registers on the 3rd since you are not receiving a late fee. Later that day or the next a charge for $187 gets to the credit card company and then the monthly period closes and you get a statement saying you owe $2,187... Since the 2K payment is registered you met your minimum payment for the month. You end up carrying over the $187 to the next period....

That's the rub. The payment ALWAYS, ALWAYS, ALWAYS posts PRIOR to the statement closing. The HIGHEST statement balance I have EVER had on the card is about $300. The $187 balance was the highest I have had in about 8 months. And then, to make sure (at least I thought) I didn't pay interest, I paid the $187 off on the 4th. The CSR was unable to reconcile my numbers with the numbers the computer were showing her...she was as confused as I was. I was curious as to what my agreement has to say about it...now I am REALLY confused!

I think the difference that is hooking me is that the statement balance has bumpkis to do with the interest charge. I think it's all derived on the "new balance" amount on the statement closing date. The purchases between then and the statement closing is the "hidden" accrual that happens.

Quote:

Originally Posted by ChiliPepr To not pay any interest you must make sure you have paid at least the amount due on your bill.

Yeah, that doesn't work with this card with the magical "trailing interest."

[ChiliPepr]

Quote:

Originally Posted by FlyBoy5 And then, to make sure (at least I thought) I didn't pay interest, I paid the $187 off on the 4th. The CSR was unable to reconcile my numbers with the numbers the computer were showing her...she was as confused as I was. I was curious as to what my agreement has to say about it...now I am REALLY confused!

If you paid off the full balance before the due date and your starting balance for the next statement was $0, then I would be very confused also.

[ExFlyBoy5]

Quote:

Originally Posted by ChiliPepr If you paid off the full balance before the due date and your starting balance for the next statement was $0, then I would be very confused also.

Exactly. I can't wrap my head around it. I have had a LOT of credit cards over my short time on earth and have never seen it computed in this way. They don't do it w/ the Amex Platinum so I am not sure if this is just with the Cash Preferred card.

[marko]

Quote:

Originally Posted by FlyBoy5 Exactly. I can't wrap my head around it. I have had a LOT of credit cards over my short time on earth and have never seen it computed in this way. They don't do it w/ the Amex Platinum so I am not sure if this is just with the Cash Preferred card.

I think it's just your CP card and/or a timing issue.

I've held an AMEX card since 1977. The closing is on the 3rd of the month.

I pay the full balance from the PREVIOUS month about 10 days before the next month's statement; usually around the 20th or so. Never had a problem with interest being charged.

I do carry that balance up to 10 days before being late, but...that's their problem.

[Cobra9777]

If I were you, I'd stop this practice of paying prior to the closing date. That's just asking for trouble. I think what ChiliPepr described is probably correct. Wait for the final statement and then schedule your payment a day or two before the due date. Or just go on auto-pay. Simple as that. I use the AMEX Blue Cash and haven't paid interest on a CC in over 20 years. I don't use auto-pay, I just schedule the payment one business day before the due date.

[Animorph]

I agree it looks like you didn't pay off the entire billed amount in April for some reason. That can start the interest charges, even if you are paying on time after that. I had to zero out my balance for a time to turn off the interest charges after forgetting a payment. Auto pay of the full amount when it is due has been great to avoid this problem.

[Sunset]

I generally pay the full amount on the CC's every 2 weeks.
That way should I ever forget to pay one by the due date, they won't get me on non-payment.

Sometimes I do give a CC a rest for a month or two by paying it off fully and then not using it.

[akck]

The reason for the interest charge was because you didn't make a payment by the due date for the statement you carried a balance. If you had paid at least $187.92 on or before the due date, there would've been no interest charged. So in the future, you should pay by the due date for any statements greater than $0.

FYI, having a zero balance on your statements may affect your credit because it can be taken for inactivity. Carrying a statement balance that is paid off the following month, shows payment history which helps your credit.


Sent from my iPad using Early Retirement Forum

[ERD50]

Quote:

Originally Posted by Cobra9777 If I were you, I'd stop this practice of paying prior to the closing date. That's just asking for trouble. ....

Quote:

Originally Posted by akck The reason for the interest charge was because you didn't make a payment by the due date for the statement you carried a balance. ...

Exactly. The OP is the one making this complex. Paying before the closing date means any pending charges may not get captured, and then there is an outstanding amount due. It is just complicating everything by paying before the closing date.


If OP really wants to keep a near zero balance, then (and I think others suggested this too) make ONE payment the day before the CLOSING DATE, and be prepared to make a SECOND payment on any balance due before the DUE DATE.

I don't think this is worth the hassle, just make ONE full payment before the DUE DATE, but if you really want to keep the balance near zero, you will need to make the second payment to keep it straight.

I don't get why this matters? Why worry about the closing date? If you want a zero balance, why not pay it off every time you make a charge to really keep it at zero? I don't know why you'd do that either, but why go half-way?

-ERD50