Your credit card balance incurs residual interest (also called trailing interest) between the end of a billing cycle and the payment due date. You won’t have to pay residual interest if you pay your balance in full every month by the payment due date — it usually applies only if you carry a balance from one billing cycle to the next.
Let’s look at how residual interest works and how you can avoid it.
How residual interest works
Credit card issuers are required to leave at least 3 weeks between your statement closing date (the date you’re billed) and your payment due date. Residual interest is the interest that accrues on a balance between the end of a billing cycle and when you make a payment.
If you're not carrying a balance from the previous month, credit card issuers won't charge you any interest during this time, called a grace period. This means you won't see charges for residual interest if you pay off your balance in full and on time every billing cycle. You only incur residual interest when you carry a balance from month to month.
Avoiding residual interest
The simplest way to avoid residual interest is to pay off your credit card balance in full and on time every month. You can leverage tools such as alerts or automatic payments to help ensure you never miss a due date.
If you're carrying a balance, residual interest can be trickier. You may take several days or weeks to pay off the balance once you receive your statement. In the interim, your balance has already accrued residual interest. Because the new interest charges aren’t shown on your current statement, you might assume you've paid your balance in full only to see more interest fees the next month. To pay your entire bill in full, you can contact your card issuer and ask them for an up-to-date balance that includes any residual interest. Then, pay that balance right away. You’ll have to make the payment by phone or online to help ensure it posts before more interest can accrue.
Residual interest and comparing credit cards
Most credit card issuers charge residual interest, but how and when it's charged may not be consistent across the board. It's a good idea to learn about your card issuer's residual interest policy before opening an account.
Even cardholders who pay their balance in full and on time every month should be aware of residual interest policies for different types of charges. Complete and timely payments may mean you have a grace period between your statement date and payment due date – but you may not have a grace period for other things, like cash advances.
Understanding payment cycles, due dates, interest and fees is essential to responsible credit card use. Whether you’re applying for a new card or looking to pay off an existing balance, learning how these things work can pay off in the long term.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
