Recently, I have begun adulting properly and organised myself a credit card. Unfortunately, I can’t thank my frugality, or any sense of restraint, for having managed to avoid one for so long. It was mostly laziness. And the bank’s general suspicion of my immigration status. But eventually, after many years of hunting down car rental companies that allow booking with a debit card, and after many experiences of having had reserves placed on the card and then not released for months, I made a lifestyle change.
Now some people might think: “Oh, well, he’s a chartered accountant, and he has a Masters degree in financial management, and he’s done all of that CFA stuff, and there’s this blog that’s been spamming my facebook feed for years, AND IT’S HIS JOB, so he must have known what he was doing…”
You’d be wrong.
Some Credit Card Life Lessons That I Have Since Learned
Lesson 1: Up to 55 Days Interest Free Does Not Mean Up to 55 Days Interest Free
So here was my (incorrect) assumption: 55 days interest free means 55 days interest free. Or, rather, that a credit card grace period means a credit card grace period.
As it turns out, not.
I found that out with my first credit card statement.
Me: “I’m sorry, but I have literally only had this card a month. How is it possible that you’re charging me interest? It’s only like R1.26 – but I am honestly confused. I thought I had a grace period!”
Operator: “Well sir, you only get that grace period if you don’t buy cellphone airtime with the card*. I see you bought airtime with the card?”
*I will eventually have another adulting moment and change from prepaid to an actual cellphone contract. Again: laziness.
Me: “Yes, I did. I thought the point here was to earn ebucks/reward points/miles by using the card.”
Organiser: “Unfortunately sir, it means that you don’t qualify for the 55 days interest free.”
I then checked my credit card statement again – to discover that I also really shouldn’t be treating my credit card like it’s an overdraft facility. The card is for POS purchases and internet shopping. That’s it.
Lesson 2: you will never actually know which 55 days they’re talking about
I wish I could help with this. I have only vague suspicions about how this works. I know there’s a statement date and a payment date. The statement date seems to be the date at which the amount due on the payment date is set. Those statement dates seem to shift around a lot.
And now that I think about it, that statement date does tend to shift around the number of days in the month.
Either way, I don’t miss payment dates. Usually, I’ve paid the balance long before then. Which probably defeats the point of having a credit card – but there we are.
Lesson 3: Credit Card interest is an enigma
You’d think it would be easy.
If you do a google search for this, you will come up with a range of ways that banks (or credit card companies) charge you interest.
With my card, it seems to work like this:
- If you don’t settle in full on your payment date; then
- They charge you interest for every transaction from the date of the transaction.
Which throws that whole ’55 days interest free’ straight out the window. Because when you don’t qualify for it, they take you all the way back to the beginning.
With other service providers, you might get something that works like this (where it seems to be charged on average daily balance, or something):
And credit card interest rates are high (mine is around 21%). So when you misstep around payment date, you get hit hard. It’s no wonder that people get caught up in credit card debt.
My take-home conclusion: don’t miss a payment date.
Also, if it feels ‘easy enough’, then you’re probably being fooled.
Or perhaps it’s just me.
Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and like the Rolling Alpha page on Facebook at www.facebook.com/rollingalpha.