Learn your credit card billing cycle to avoid late chargesThe Credit CARD Act has changed the rules; know themBy Todd Ossenfort
Dear Credit Guy,
Recently,
several of my creditors have done a very sneaky thing. I often pay well over my
minimum payment requirement. I also will often make two or more payments per
month if I have extra money on hand. Usually, if I make more than one payment,
the second payment gets applied to next month's minimum payment requirement.
Hence, I often have a minimum of $0 due for the next month. However, sometimes
the extra payment is received before the end of the previous month's billing
cycle and the extra money I paid is applied to the remaining balance rather
than the next month's payment. Even though the payment came after the due date,
it's before the end of the billing cycle and is applied in the same month as my
first payment. This, of course, means that if I wasn't paying attention, I could
unintentionally send a payment to them too early or too late and incur late
fees and lose my low APR. I feel that this is very sneaky. Is this practice
legal? -- Dela
Dear Dela,
The
billing cycle set by your creditor is a fully disclosed cycle that does not
change. Your monthly statement clearly states when your payment is due and how
your previous payment(s) were applied. No, I do not believe that applying all payments
received during a billing cycle to the balances on the account is sneaky. In
fact, both payments being applied during the same billing cycle should help you
pay down your debt that much faster. The reason? Because the Credit Card
Accountability, Responsibility and Disclosure (CARD) Act of 2009 states that after
the minimum payment is met, all other payment amounts must be applied to the balance with the highest rate. Even if you have only one
interest rate associated with the account, extra payments are accomplishing
what I assume is your goal of paying down your balance quickly.
The
Credit CARD Act also requires card issuers to issue monthly statements in such a
manner that consumers have at least 21 days from the date mailed to make a
payment. Therefore, you should have plenty of time to make at least the minimum
payment due if your extra payment happens to fall in the same billing cycle as
your first payment.
To
alleviate your fears of unintentionally missing a minimum payment due, you have
several options available to you. First, and what I would recommend, is to
determine an amount that you can afford to pay each month as your regular
payment on the account and have that amount automatically debited from your
bank account before your monthly due date. Then, if you have additional money that
you would like to apply to the account, you can always send in another payment
as you have been.
Second,
keep track of your monthly billing cycle and only make your additional payment(s)
after the cycle has ended. Or third, keep the extra money in your account and
add it to your standard monthly payment.
Congratulations
on your efforts to pay off your credit card debt. You might want to save some
of that extra money, if you haven't already, in an emergency savings account of
six to 12 months of living expenses. This will help you avoid unwanted credit
card debt in the future.
Take
care of your credit!
See related: A guide to the Credit CARD Act, Understanding how credit card minimum payments are set, Only payments over the minimum go to high APR balances
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to The Credit Guy.
Published: October 25, 2010
 |
 |
 |
|
Three most recent The Credit Guy stories:
|
|
 |
|
 |
|
|
|
|
CreditCards.com's newsletter
Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!
 |
|
|
|
|
|
