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Credit Card Interest

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Credit Card Interest

Anyone understand how this is calculated?
My own calculations of my last statement balance was some £10 lower than that charged. I thought interest was charged on the balance as from the previous statement - obviously not..
From the back of my current statement (and online):

Quote
Interest free period
    Maximum 56 days from date of transaction for purchases and non-sterling cash withdrawals if you pay your balance in full and on time each month.
    No interest free period on cash withdrawals in sterling or balance transfers (this is subject to any interest free promotional offer).
Interest charging information
If interest is payable it will be charged over the following period:
Purchase, Non Sterling Cash withdrawals and balance transfers: from the date the transaction is debited to your account until the date of your last statement before the transaction is paid in full.
Sterling Cash withdrawals: from the date the transaction is debited to your account until it is paid in full.
If your balance is not paid in full, interest will be charged on the total statement balance and not just on the outstanding balance. Interest is charged on your average daily balance. By repaying more of your balance, or by making your repayments earlier, you will pay less interest.
Allocation of payments
If you do not pay the total outstanding balance in full by the payment due date, we'll apply the amount you do pay to reduce the higher interest rate balances before lower interest rate balances. For further details, see your credit card terms and conditions.

How does anyone go about ensuring we're being charge to correct amount of interest? Surely this could be made simpler?

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11 REPLIES
kmilburn
Grafter
Posts: 902
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Registered: 30-07-2007

Re: Credit Card Interest

The way most CC organisations calculate interest seems somewhat of a black art!
The big issue is usually the handling of the interest free period.
Community Veteran
Posts: 6,586
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Registered: 16-02-2009

Re: Credit Card Interest

IF you had no outstanding balance then it should be the amount owed less the payment * the interest rate, they usually post the amount on the statement.
I try NOT to incur any interest as they charge silly rates.
Community Veteran
Posts: 16,834
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Registered: 06-11-2007

Re: Credit Card Interest

I seem to recall something on Martins Money email that if you owed £500 and paid of £499 before the end of the month, leaving a balance of £1. next months interest will be based on the whole £500  plus the £1
Shocked
Community Veteran
Posts: 6,586
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Registered: 16-02-2009

Re: Credit Card Interest

I have on one occasion miss paid, I paid £x3x  instead of £x8x when I got the new bill in and found interest I called and said I had paid the whole amount off, he pointed out that I had miss paid but waived the interest due, since it was a simple keyboard error, don't think you would get away with a £3xx instead of £8xx though.  Cheesy
Community Veteran
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Registered: 12-08-2007

Re: Credit Card Interest

All the time you have an outstanding balance interest is charged on the full amount and not the reduced amount after taking into account any payments you have made.
Community Veteran
Posts: 18,545
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Registered: 12-08-2007

Re: Credit Card Interest

Just had a look at my Mastercard statement.  it states that if you do not pay the full amount off,  when you make a partial payment it goes towards paying the most expensive debt first.
Community Veteran
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Registered: 16-02-2009

Re: Credit Card Interest

That was because they used to pay the LOWEST interest one first, so if you had some at Low% and some at High% then the Low% was paid off first resulting in MORE interest.
I keep one CC just for balance transfers, if I have the need then I can transfer the whole balance from my main CC to it, costing me a 2.9% fee for (usually) 9 months interest free. I usually only need it if we have had a high expense month like having to buy a new white good and I can't really pay it off like I usually do (I use a Tesco credit card to get extra points, I usually get the same again in vouchers from my CC as I do for purchases in Tesco)
Community Veteran
Posts: 18,545
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Registered: 12-08-2007

Re: Credit Card Interest

I said highest debt not highest interest. 
Community Veteran
Posts: 6,586
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Registered: 16-02-2009

Re: Credit Card Interest

Hmm isn't the highest interest usually the highest debt?
If you owe £1000 @ 1% and £200 @20% then the £200 one is the highest debt.
Community Veteran
Posts: 18,545
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Registered: 12-08-2007

Re: Credit Card Interest

That's what it says on the back of my CC statement - highest debt.
I think this could be read to mean highest interest debt.
Your example isn't very realistic as you would not get such differences in rates on CC transactions.
Community Veteran
Posts: 6,586
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Registered: 16-02-2009

Re: Credit Card Interest

Yes you would, if you had a balance transfer @ 1% and a normal transaction at 20%.
Also some CC's offer reduced rates for shopping at certain shops/items.