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Credit card residual interest: What it is and ways to avoid it

Residual interest, aka trailing interest, occurs when you carry a credit card balance from one month to the next. It builds up daily between the time your new statement is issued and the day your payment posts. Since it accrues after your billing period closes, you won’t see it on your current statement. So, even if you pay your current statement amount in full, your next statement may come with a surprise: you still owe accrued interest. But there are ways to avoid this.

How residual interest works

You won’t need to calculate residual interest yourself—your credit card company will do that. But if you’re curious about it, here’s how to estimate what you’ll owe each day that the account is not paid in full, using an 18% annual percentage rate (APR) example:

Say you had a big credit card bill a couple of months ago, couldn’t pay it all off, and carried a balance of $1,000 onto your last month’s statement.

  • Divide your APR by the days in a year. In this case, 18% divided by 365. The result is 0.0493%.
  • When you multiply this by your current balance of $1,000, the result is 49.3 cents. That’s what you add to your balance each day that it goes unpaid.
  • So, if your billing cycle begins on the 1st, and you pay off the $1,000 statement balance on the 11th, you will be charged an approximate total of $4.93 in residual interest on that $1,000 by the time your payment is received.
The actual amount of residual interest which shows up on your next statement will be slightly higher since interest is calculated daily and compounds on interest previously charged, but this gives you an idea of what additional amount would be owed.

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• First day of the new billing cycle
• Residual interest accrues
• Payment received

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How residual interest can trip you up

Since you won’t see this charge on your current statement, when you pay the statement balance you could mistakenly think your balance is zero and not check your next credit card bill. That could trigger a late fee which would continue to increase the amount you owe. Another potential issue: Late payments could show up on your credit report, possibly affecting your credit score.

How to avoid residual interest

There’s one reliable way to steer clear of this charge: Pay off your credit card in full every month. If you haven’t been doing that, you may be able to call your bank and ask for a payment amount which will cover any residual interest to be billed in future statements and result in your balance truly being $0.

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