Residual Interest – also known as subsequent interest – is the interest accrued on the loan balance between the end of the billing cycle and the day the issuer receives payment. If you always pay your bills in full, then this may not apply to you if your issuer offers a bounty period, and you may be able to avoid it completely. However, if you carry your balance monthly with a monthly card without a bounty period, the remaining profits will be kicked.
This is something you need to know about residual interest and how to avoid it.
What is residual interest?
To understand the interests of residuals, you first need to know how the billing cycle and bounty period work. After the deadline for each billing cycle, the credit card issuer will send you a statement telling you how much you are owing for that billing cycle.
By law, issuers must send a statement at least three weeks prior to the payment due date. This means that there will be at least three weeks between when you need to pay it because you have an invoice. It’s perfect for planning purposes, but if your card doesn’t have a blessing period, your unpaid balance will keep you interested in every day. After you have paid the full amount in the statement, you will still be required to pay the interest you accrued after your statement is sent. This amount will be added to the following statement:
Blessing period
Most credit cards are offered during Grace period. This means there is no interest between the windows between the end of the billing cycle and the due date. If your card has a blessing period and you pay your statement in full in full each month, no remaining interest will accumulate.
However, please note that not all credit cards have a period of blessing. Even cards with a bounty period may exempt certain types of transactions (such as balance transfers and cash advances). Review your cardholder agreement and learn the issuer’s rules about residual benefits and how they apply to you. You can find this agreement on the issuer’s website or request a copy if you cannot find it online.
Examples of residual interest
Let’s say the billing cycle ends at the beginning of the month and the card has no bounty period. Shortly after the billing cycle ends, you will receive a credit card statement at the total amount due for that month, including interest. In this example, let’s say the balance (including interest) in the statement is $580.
The publisher will receive a $580 payment on the due date three weeks later. However, throughout these 21 days, there has been interest in the balance of outstanding payments. You may be borrowing an additional $10 interest, which applies to your next statement.
Why it’s important to track remaining interests
The biggest issue of residual interest is visibility. It can be easily overlooked unless you know how to keep an eye on it – especially if you pay the final debt and think you have no more payments. It’s easy to see that if you’re not monitoring your unused credit cards, you may not be able to notice any remaining interest charges right away.
Missing an unexpected credit card bill made up of residual interest can not only cost you more money, but it can also affect your credit score. Payment history accounts for 35% of the FICO score and is “very influential” in the VantagesCore model. If you accidentally miss a credit card payment consisting of residual interest, your credit score can be damaged as a result. The longer it takes you to notice, the worse it gets. Even after repaying interest on a late residual credit card, it can take months for your credit score to bounce back.
If you close your account after paying off your credit card debt, the issuer will still be able to charge you the interest and fees accumulated between your last statement and payment. It is important to carefully review your account agreement and understand how your lender calculates interest and fees. You can also contact the lender for more information.
If you are concerned that you are being charged against charges or interest that should not be, you may file a written claim error dispute to state your concerns within 60 days of the false statement. You can usually learn more about how to file a written claim error dispute from an invoice.
How to avoid residual interest
Whether you are trying to process your recurring credit card payments or working to pay off your accumulated credit card debt, there are a few steps you can take to avoid remaining interest.
Please select a card with a grace period
Cards with bounty periods usually do not earn remaining interest, so the easiest way to avoid these fees is to consider cards that offer this exemption. Once you have selected a card that offers a bounty period, you will pay the full statement balance each month. Please refer to Cardholder Agreements as late or minimum payments may not apply to the bounty period.
Pay your bill early
If you get caught up in the card without a bounty period, paying early for your perfect statement balance means there is no balance that will generate residual interest in the first place. To do this, you can do this by logging in to your online account on the last day of the billing cycle, viewing the current total balance and paying that amount.
Apply for a balance transfer credit card with 0% intro APR
If you have a significant credit card balance, we recommend considering transferring balances to your APR card at 0%. The highest balance transfer credit card offers a referral period of 18 months or more. During that time, no interest will be charged. This will help prevent your existing debt from growing while you work to pay it off.
Bankrate’s Credit Card Payoff calculator helps you determine whether you need to pay monthly, taking into account your card’s balance, interest rates, and the months you need to pay it back. You can also use this tool to test payoff timeline for 0% intro APR cards of interest.
Conclusion
Understanding the remaining interest and its meaning is important to effectively manage credit card debt. Knowing how residual interest works, eagerly monitor credit card statements, and taking aggressive steps to address aggressive interest can avoid potential financial costs and negative impacts on your credit score. If necessary, consider strategies such as choosing a specific card, early payments, and using a 0% introductory APR balance transfer credit card to minimize the impact of residual interest.
