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Ah, you might think this is all about saving, earning your worth and tucking some away. Reading the Fool and all..

But I just learned a different take on it...the benefits of Compound Interest depends on whether it's Incoming or Outgoing.

I didn't know this before, haven't had credit card balances that weren't paid in full for years, been doing reward credits on it.

Received a disclosure change from a CC company.
Part of one paragraph clearly stated that '..this is compound interest'...speaking about
'Every month your Balance and outstanding Interest are used to calculate the interest that we will charge you.'

Interest on Interest???

Wasn't particularly highlighted, but it was in there.

What???

This was in the middle of, near the center of, toward the top of the long part, but inbetween the other part, of the part that stated the changes in your account.

Now, this, in my opinion, contained blah blah with clear points if you Really Read It -
No examples were shown however for folks who wouldn't know how this works.

Granted, they did try to spell it out in simple clear terms, so as to be as transparent as possible. :-) Play Nice.

All well and good if you have the Means to Pay off your bill in full every month.

I'm sorry - prob. mistakes in this post but this
'Tisses me off!

I have been there, using a CC to Build Credit years ago.
But some might be looking at 22+% interest.

If you are looking to build your credit, keep a balance for a month or two - gosh, what the heck does it cost you?
And for those unable to pay the whole amount -

All I can say is I think this is a stupid mistake by the CC companies...you can't compound the interest - these folks will never get out of debt and you will find your company holding the bag again.

And gee, who will pay?
US (stands for United States)

I'm cancelling that CC
and giving them feedback.

nag
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As I stated, haven't had a balance in years -
has this been the norm???
Interest on Interest?
Set me straight - I was just arghh
nag
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'Every month your Balance and outstanding Interest are used to calculate the interest that we will charge you.,

This isn't as bad as it first appears. Interest is based on average daily balance. As a billing period closes, interest is posted to the account. It now adds to the average daily balance.

The closer the payment is made to the start of the billing cycle, the less "compound interest" paid.

The minimum payment is required to cover interest, fees, past due amounts, and some principal (around 1%?).

As long at least the minimum payment is made, interest is paid each billing cycle and there is no negative amortization to accumulate compound interest.
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I'm sorry, I just don't remember this when we carried a balance.

And they said the disclosure was a change...

Of course, the Dog Ate It before I could analyize further.

nag
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If you are looking to build your credit, keep a balance for a month or two - gosh, what the heck does it cost you?

I've never heard any "credit experts" say that carrying a balance on a cc for a month (or more) helps one's credit - I think this is a mistaken thought a lot of people have.

Consistantly making payments on the types of loans that are monthly - mortgage, car loan, student loan - does help one's credit - but I think that's because that's a type of loan that's considered "installment" and expected to be paid back monthly, not in one lump sum.

But a cc is not considered "installment" - so I do not think carrying a balance for a month or two ever helps increase one's credit score compared to someone else who always pays the balance off each month.
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If you are looking to build your credit, keep a balance for a month or two - gosh, what the heck does it cost you?
And for those unable to pay the whole amount -


This is not true now, and it was not true in the past. It is absolutely not necessary to carry a balance and pay interest to build your credit. All that gets reported to the credit agencies is your balance at the point in time that the credit card is reporting your info to the agency. Nowhere does it say that you are or are not paying the balance in full, and it is foolish to carry a balance to build a credit rating.

To build a credit rating, you just need to use the card, but you can (and I'd argue should) most certainly pay it off every month.

I've never paid a penny in credit card interest, and have stellar credit.
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I'm sorry, I just don't remember this when we carried a balance.

And they said the disclosure was a change...


I don't know of any credit card that has a grace period when carrying a balance. Maybe they didn't add the current interest charges into the daily balance calculations for interest charges.

If it is a change, then it would increase interest charges. Assuming that the payment is always a month after the close of the billing cycle, the additional interest would be
Average Balance * (1/12 interest rate) * Interest rate.

For most customers that carry a balance, the difference will be small.

Annual difference per $1,000 with 12% interest

$1,000 * 1% * 12% = $1.20

Even this amount should be decreased by paying early in the billing cycle.

When carrying a balance, there is no grace period. The primary concern should be the eliminating the balance.
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Sorry, my frustration over another matter led up to the post.
Hate having no choices - with hands tied.

You are all correct...on all replies,
that's why I like this site - everything is an education.

Off to deal with the real deal,

nag

who occasionally misdirects frustration...
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I'm sorry, I just don't remember this when we carried a balance.

Well, perhaps they have changed the way they word the disclosure, but it has always worked this way.

Your principal and interest in one period BECOMES your principal balance for the next period, on which new interest will be calculated.

xtn
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