After carrying a credit card balance for months (or years), you’ve made what you thought is your final payment. But then, when your next statement closes, a charge for a few dollars in interest appears.
The ghost of your debt is living on in the form of what’s called “residual interest” or “trailing interest.” It’s a confusing concept, one that’s tripped up even some of our forum members.
Here’s what’s going on – and how to put your debt permanently to rest.
Why am I being charged interest on paid-off credit card debt?
Residual interest will affect you only in a rare and specific circumstance, says Nessa Feddis, senior vice president and deputy chief counsel for consumer protection and payments at the American Bankers Association.
“It happens when a person goes from being a revolver to a non-revolver,” Feddis says.
In other words, you’ve gone from carrying a balance from month to month to paying in full.
Those who have been paying in full for at least two months in a row don’t have to worry about residual interest. But those carrying balances have forfeited the grace period (the time you’re allotted to pay your bill without interest accruing). That means interest is calculated each day the balance remains outstanding.
When you send in what you think is your final payment, there’s probably a delay in the bank receiving it. Perhaps you received a statement on the 15th of the month and pay on the 25th. The issuer then processes your payment and deducts it from your balance on the 26th (or even later if you mailed a check). During that gap, interest is accruing on your balance.
“Usually it’s a very small amount,” Feddis says. “You’re talking cents. It’s not a lot of money. It just reflects the fact that, like any loan, interest accrues on a daily basis.”
If you keep using the card, you’ll simply see the residual interest charges on your next statement. It can be more jarring for those who plan to never use the card again, put it out of sight and out of mind, and then find they still owe a small balance for reasons they don’t understand.
Dealing with trailing interest
Take the following steps to avoid getting tripped up by trailing interest:
- Before you go from revolving to paying in full, cease all use of your card. Go online, use a mobile app or call your bank to get your current up-to-the-minute balance.
“You don’t have to wait until the statement is sent,” Feddis says. “Anyone can go online and look at their balance, pay it in full and just not use the account until the payment is reflected on their account.”
- Note that, even if you pay online, it may take a day (or more if you pay on a weekend) for the payment to be processed.
- Once a zero balance is reflected, use your card again if you wish.
“The point is that your payment arrives before your next transaction,” Feddis says.
- Note that any delays in payment processing may still cause a small amount of trailing interest. If you’ve put your card in the sock drawer, remember to read all communication from your bank so you know if you owe anything.
- Pay those couple cents or dollars of trailing interest as soon as they appear on your account. Your bank may agree to waive the small amount if you call and ask, but “it’s not something to be ignored,” Feddis says. “People need to tidy up loose ends.”
- Keep your card in the drawer, cancel it or use it as you see fit. If you continue to pay in full, there’s no need to worry about residual interest.