Thread: Please help me calculate finance charge

I always pay my balance off in full, so I've never had to calculate finance charges. Now I'm trying to do it and I can't figure out. Any help would be appreciated; should be simple for someone who understands this stuff (which I don't).

My "Outstanding balance" as of today, according to the bank's Web site, is $5199.

My "New Balance", according to my last statement, is $2809, due on 11/20.

Minimum payment: $56
Daily periodic rate: .01984%
Corresponding APR: 7.24%

From what I can tell from the fine print on my statement, the company uses an average daily balance, multiplies that by the daily periodic rate, and then multiplies that by 30 days to determine the finance charges for the month.

So please check my math on this, because I'm still fuzzy about the whole thing. I'm planning on paying $1000 by the due date (11/20). So does that mean that I should calculate the finance charged based on the $1809 difference? Which comes out to 1809 x .01984% x 30 = $107. Is that correct? And if I pay the balance ($1809 + $107) a few days later, is that better than paying it the next month, when I pay my bill for the new charges? Or does it not matter? In other words, will I be paying the same finance charge either way, or does it get bigger as the month goes on?

Thanks in advance for any help.
-John

Bear with me, please.

Assuming you paid your balance in full in the payment period previous to the one under consideration now, there should be no finance charge next month if you pay the balance as shown on your current statement in full by the due date.

If you failed to pay the full balance last month, then everything that carried over and all charges since are subject to finance charge. Assuming this is the case...

If you pay your current statement balance in full by the due date you will be charged interest on the charges that have accrued since this statement was cycled.

But if you go online or call and ascertain your current amount outstanding, you can avoid paying some (maybe all, but probably not; I'll explain why) of the interest on the charges subsequent to your last statement by paying this amount in full.

Trouble is you don't know what method the bank uses to compute interest...It could be based on high balance of the month; they may take two or more snaps of your account per billing period and base interest on whatever that amount is; it could be average daily balance, or it could be something else. I've never really understood how this works and I don't think anyone really does :-). You won't go wrong if you assume that the method used will be the most advantageous to the bank -- in your case (if you rolled a balance over) one that starts the interest clock soonest and keeps it ticking as long as possible.

My point is, even if you knew to the penny to the day (hour by hour?) the interest being charged and had the money to pay and did so immediately, you would probably still owe some residual amount of interest in the next statement cycle -- it would be the amount that accrued between the time you figured out what your total liability was going to be and the time your payment posted.

My final point is that this whole exercise is probably moot because if you pay on line -- which is what you would have to do to minimize/eliminate interest under the scenario above -- you would only be able to pay the outstanding balance at the moment of payment. The bank almost certainly -- if it's like any of mine -- won't let you pay more than you're outstanding balance, which is what you would have to do if you want to get out in front of an interest clock that's already ticking.

Does that make sense?

You can't pay more than the last statement balance if you initiate a payment on their website, at least that's what I've found.

On a side note... I got a new Citi card recently and immediately set up for them to debit my checking for full statement balance every month. They sent me an e-mail saying the autopay function had been activated and then proceeded to not debit my account by the due date. I called and they said the wouldn't count it as a late payment and I immediately paid balance on line.

The opposite happened with another Citi card. I paid balance manually thinking autopay had not been activated yet. They then proceeded to debit my checking for the payment I had just made.

Point is, it is entirely unclear when they activate autopay. Citi is horrible at this so if you choose to use autopay (once it's activated it's very convenient) you need to watch them. Call before you make/decide not to make a payment after you initiate autopay. Grrrr.