Are credit cards ever paid off?

rollinridgeJuly 2, 2006

My DH & I, like many others got into a whole lot of CC debt-like $53k. He's on workers comp, SSDI, with gas prices going through the roof...basically there wasn't alot of income to cover our monthly bills. (I do work full time and put in OT each week to add to the income).

So we bit the bullet and did what alot of people say is a no-no and took out a 15 home equity loan (7.89%) for $50k to pay them off. This would reduce our credit card monthly minimum from $1472 to $470. Prior to closing, the bank said to get 30 day payoffs but when I called the companies they would only say that the payoff is what was on our recent bill. So those are the numbers we paid. I then went online to each of the companies to make sure the $$ got credited and they all had balance -0- amount due -0-.

Now we're starting to get new statements in - with finance charges! I called one (MBNA who we've been struggling with for years - over $10k balance). They said the charges are appropriate because they continue to increase until the day the $$ is posted. Whatever happened to grace period? They refused to reverse the charge so now I have an additional $142 to pay. So I asked him if I paid today what would I have to pay to get it to -0- because I want it done with - and was told that interest charges don't add interest. ??? Doesn't make sense to me. Since he said he wouldn't reverse - not because he wasn't able to but because he didn't WANT to that made me mad. So I hung up.

I was so angry over this I just want to cry.

So-if I don't pay all of this $142 by the payment due date do they add more interest on the interest for next month? (I guess my question is do I now -not pay something else to get this off my back or can I string it along paying a little at a time without interest being added?)

I've also got one of these bills from Citibank and am afraid to call.

After going through everything to think they were all paid off and cut up and closed I just wasn't expecting to get more bills.

So what do I do?



Now I get

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I'm sure someone with more experience in this area will let you know about "interest on interest".

But I can tell you that if you got yourself into credit-card trouble, pretty much any agreement you thought you had with the CC company is out the window. Missed payments -- or even late ones -- will dramatically change terms like grace periods or interest rates.

I don't think you'll be able to get rid of that $142 charge or the one in the Citibank bill. Your best bet, I think, is to call these CC companies, get a payoff figure as of a date in the not-too-distant future, pay those amounts (loose change compared to $53K in CC debt) by that date, and, separately, mail a letter requesting that the account be closed as of that date. Don't accept "just pay the figure on the bill" because you now know these numbers are not up-to-date. And don't close accounts over the phone. Closing by mail (following the terms the CC company specifies) at least gives you some proof that the account has been closed.

    Bookmark   July 2, 2006 at 5:53PM
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My husband and I recently bought a new home before our old home sold. We used CC to pay for some things until the old house sold. As soon as the check from the old house cleared we paid up all our CC bills in full. One sent us a bill the next month for $9.96. When we called to ask about this as we had not used this card at all since the "pay off" we were told that the company collected interest until our check cleared! Needless to say we sent the $9.96 with a cancellation on the account. Mind you the balance on this card was only $900! We now only use our CC to the extent we can pay off at the end of the month! nova

    Bookmark   July 2, 2006 at 6:39PM
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Chemocurl zn5b/6a Indiana

I believe the grace period only counts if the amount is paid in full each and every month.

I believe they were right in having the amount on the next statement. The amount showed on the recent bill is only valid if it is paid on the actual statement date.


    Bookmark   July 2, 2006 at 6:48PM
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I found this out the hard way about a year ago. As a regular pay-in-full every month customer for the last decade, I ONCE decided to let it slide for a month due to cash flow and paid only part of the balance. The CC companies have changed their policies so that you pay interest on your "average daily balance" over the last month, so that if you have a balance, and decide to pay in full the next month, you will still owe the interest on the "average monthly balance" of the previous month. Mortgages don't work this way and you can get a "payoff" balance; CC companies can do whatever they want.

Grace period only applies to balances you pay in full each and every month. The good news is that if you pay that interest charge (assuming that's all that's left--no new or old charged balance, i.e. you have no used the card at all that month and paid the previous balance in full) by the due date, you THEN are done.

You're right that it didn't used to be this way. I'm sure you got some little slip of paper with a credit card statement at some point that explained this, as I'm sure I did and ignored.

Good luck with paying things off. I got in trouble once along with my ex to the tune of $20+K in CC + 10K in car loans before we had a mortgage in the early 90's, but put the nose to the grindstone and made the payoffs happen, and now owe only my mortgage to anyone, and never touched the retirement pre-tax acct. Your house is not an ATM, so don't be tempted to do that again. No criticism, just don't think about that one again, since I'm sure you're now paying that "equity" loan, too. Just pay as much as you can every month. I would focus on one--not necessarily the highest interest rate one, but the lowest balance one--to pay off ASAP while maintaining the min payment on the others. Although monetarily it may seem that in the big picture, you pay the highest interest one off first, there is a huge value in just getting one paid and working on the next.

We finished paying off with my ex on disability (no SS, though) and a new baby and bought a house in 1998. We always paid on time, so once things were paid off, there was actually only a positive on our credit for having paid it.

You can do it. Tell yourself you can and keep going. You're on the right track.

    Bookmark   July 2, 2006 at 8:10PM
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I vaguely recall that some cards use the average daily balance over the past TWO billing cycles to compute interest.

    Bookmark   July 3, 2006 at 2:29AM
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Thanks for the input. So I guess I will have to pay it. But does anyone know if you get interest on interest? (The way the MBNA guy said it was you don't but I don't believe any of them).
We did send close notices for them at the time of payment and have cut up the cards leaving only a couple for emergency use only. (i.e. Sears for appliances, Home Depot for house repair and American Express). There are 3 left with balances (cards already cut) and when those are paid off-they are gone.
I really didn't want to do the home equity thing but got desperate when I was juggling them all around as to all of the due dates to not pay late fees and the mortgage was paid after the 15th each month so I was paying the $50 late fee on that-didn't make sense- and figured that at least now it will be paid off in 15 yrs where the CC was eternal.
I also read about bi-monthly mortage payments and since I get paid ev 2 wks thought that would be beter for the budget. But since they "take" your $$ every 2 wks but don't "apply" it to the mortgage payment until after the 2nd draw I decided to try to set this up myself. The Equity loan is with a different bank than we normally deal with. We had a checking acct set up for auto pay from them with me have direct deposit. So I'm now putting half of the mortgage pmt in there too - that way it's put aside but not for them-for me.
I'm hoping to get back on track-didn't used to be like this.
thanks all

    Bookmark   July 3, 2006 at 7:39AM
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Yes, you pay interest on whatever balance is owing, until it's paid. What showed on your statement was as someone said, what you owed as otf the date of the statement.

The large bnalance was still owing through all of the days from the statement date till they recieved your payment - adn, as they said, till the cheque cleared. As some others have said, sometimes they charge interest on average recent balances.

Now that you have changed that consumer debt into a mortgage, it looks as though you're building an asset, whjich is the way that we usually consider mortgages.

But you've changed a major asset into a liability, recently, because you now own a much smaller portion of the value of your home than you did a few weeks ago.

What you were doing with the credit cards was consuming before you'd earned.

I hope that you'll consider that portion of your mortgageto be paying now for stufff that you ate yesterday, i.e. living beyond your means.

If you try to pay it off a lot faster than the fifiteen years, you'll be able to use the interest that you're now paying to buy more stuff, buy something that you continue to own for a time, e.g. vacation cottage, pay for your kisds' higher education (or upgrades for your own), plan for retirement, etc.

Now, you not only have to live on your current income - but you have to use part of it to pay off spending that you did earlier, higher than what you were making.

That way lies trouble.

I hope that you'll make a strong effort to pay down this debt as quickly as you can (with a bit of a repsite from tiome to time, taking a breather from the hard saving, more or less, so that you don't feel too hard one by).

It will pay you in the long run to do so.

And, when you charge stuff on the card - just stuff that you plan to pay off on receipt of the next statement.

And, consider seriously the rate of interest that you're paying. Usually on store-issued cards it's 0ver 25% annual rate; on regular cards 15 - 20$.

Quyite a difference.

ole joyful

    Bookmark   July 4, 2006 at 1:28PM
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Sorry about the lack of editing in the message just above - I was almost out of time at the library and didn't want the message to disappear into thin air.

The error in the last paragraph is that the interest rate on regular so-called "credit" (really "debt") cards is usually 15 - 20% (I wrote "$" there).

Good wishes as you and your family work toward getting your financial system in better repair. Learning how money works is an interesting hobby - *that pays well**!

I meet monthly with a group of about 20 - 25 local subscribers to an investment magazine and the other day several were saying that some losses that we've suffered over the years in using the worng advisors, investing the wrong way, losses in stocks as the market goes down, etc. are more or less the tuition that we pay for a financial education.

We have acquired a smart young guy recently, but he's been sort of quiet for a couple of meetings - a couple of oldtimers suggest that he's probably suffered some recent losses. One gets to take such things in stride, after while. "Hard to put an old head on young shoulders!", Dad used to say.

ole joyful (again)

    Bookmark   July 4, 2006 at 2:19PM
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Be careful about setting up an every two week mortgage. Many mortgage companiees charge you a fee for that. Just add anything you can afford to your payment, marking it for Principal. There is no fee for that and you retain the flexibility to do it or not, depending on your situation that month.

I re fi's in 2001 to a 10 year and have been adding extra principal to my payment almost every month and I will paid up in 2008 and a half!

    Bookmark   July 5, 2006 at 4:50PM
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Can you pay it electronically on the due date? It should clear immediately.

    Bookmark   July 6, 2006 at 4:40PM
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"Can you pay it electronically on the due date? It should clear immediately."

Depends on the CC company. Citibank takes 3 days to clear electronic payments. Chase clears them instantly.

    Bookmark   July 7, 2006 at 9:26PM
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Thanks for all the info! It was a hard step to take out that equity loan because I knew that it is eating up the house. But I really saw no other alternative.
I think I will call the CC that are sending me the "interest" bills to make sure I can get them paid off in 1 sweep. [Interest on a $20 balance that is never going to get paid off? That's the problem if I can't get an exact amount on an exact date].I am hoping that by doing this we'll have more $$ to put towards the equity loan and mortgage to pay them down-even if it's only a little bit each time.
I do pay all my bills online (i.e. electronically) through their websites. I found out the hard way a few yars ago that to try to set it up from my bank that even though I put in the date I wanted something paid - it wasn't until the company came and "drew" the $$ (that the bank had put a hold on) which made a few bills late-took up to 5 days. So by paying them though the company's site I get a payment date on the date I request.
I didn't set up the bi-weekly mortgage though Wells Fargo (even though they were offering it free) becuase I didn't want them "holding" my $$ for 2 wks until the 2nd draw then pay to the mortgage. I now am putting it in a separate bank account and I will electronically pay it each month-with me deciding to add the extra. (And this way if I can't afford extra the $$ is there for my emergencies). [Like the $432 vet bill for one of our dogs this week-unexpected illness yuck!]

    Bookmark   July 8, 2006 at 7:39AM
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The easy way to handle this is to pay them a few bucks more than is on the statement amount to cover the interest that's accruing. If you do it right, you'll end up with a slight credit and no more interest. Then tell them you want a refund check. And I hope you really did cut up all those credit cards so you don't get sucked into the same cycle, because repeating this is going to put you in a position where you could lose your house next time. I'm not trying to scold's just that you don't seem to have a complete grasp of how those vultures operate -- despite all you've been through -- and I wouldn't want to see you in their clutches again. Good luck.

    Bookmark   July 12, 2006 at 3:49AM
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Cutting up credit cards after the balance is 0 is not sufficient. Most CC companies charge an annual fee whether you carry balance or not. So call the bank and close the account, if you know that you do not need the account.

Another thing, you do not need multiple accounts for emergency. If you need to buy an appliance at Sears, you can always use VISA or Master Card. You only need one card, ie American Express for emergency. However, I think AE is one of the worst since their annual fee is so high and their interest rate if the balance is not paid in full is also high.

At this point in my life, I only use one VISA account and I pay the account in full every month. I have one other VISA at home in case I lose the VISA that I generally use. I do not use any other store CC. It's not worth the trouble of dealing with the billing.

    Bookmark   July 18, 2006 at 5:22PM
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"Most CC companies charge an annual fee whether you carry balance or not. "

Really? Or am I just lucky... I am in my 50s and have never paid an annual fee... Discover (me), Visa (joint), MasterCard (husband)- no annual fee.

    Bookmark   July 18, 2006 at 7:42PM
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We had the bank send out cancellation notices to all of the cards at the time of the (what I thought was) final payment. Should I check on them to make sure they ARE closed? I've only gotten 1 letter in return acknowlding the closure.

    Bookmark   July 22, 2006 at 7:55AM
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We had the bank send out cancellation notices to all of the cards at the time of the (what I thought was) final payment. Should I check on them to make sure they ARE closed?

Yes, you should. People in many states are eligible to receive a free copy of their credit reports at the three big agencies. Review the credit report, because if someone goofed or forgot to do something, you will see the results in the credit report. You should review the report anyway to see if there are credit inquiries or other goings-on that do not "belong" to you.

    Bookmark   July 22, 2006 at 10:54PM
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