Reader Discovers It’s Difficult to Pay the Balance to the Penny

Credit card companies use the average-daily-balance method to compute interest, which makes it nearly impossible to pay a credit card balance off to the penny, says Mary Hunt. jason cox/Shutterstock

Dear Cheapskate: This is petty perhaps, but how does one ever completely pay off a credit card account?

We paid off a credit card recently (Hallelujah!) by sending a check for the exact amount of the balance due taken from the monthly statement. The following month we received a bill for $1.91—all of it a finance charge! Sure, it isn’t much, but that was discouraging. Any suggestions? —Alan

Dear Alan: You’ve just discovered another of the credit card companies’ tricks. Because companies use the average-daily-balance method to compute interest, it’s nearly impossible to pay a credit card balance off to the penny if you’ve been carrying a balance of any amount.

You could spend a lot of time and trouble calling and haranguing customer service to time your payment with their billing cycles. Or bite back: When you’re ready to make that final payment in full, add $5 to the amount you owe. When your next statement arrives with a credit balance, call customer service and request that they send you a check for the credit balance.

They probably won’t do it unless you close the account, but how nice for them to owe you for a change!

Dear Cheapskate: I ruined my credit years ago in the usual foolish way people do with nonpayment and slow payments.

Even though I’m much more careful and responsible now, I can’t shake the bad credit history. My bank doesn’t offer secured credit card accounts. Do you have any suggestions to help me get a credit card? —Discouraged in Florida.

Dear Discouraged: Negative credit items will automatically drop off your report after seven years; bankruptcy will stop being reported to the credit bureaus after 10 years. Your report should be cleaning itself if your missteps took place that long ago.

As for getting a secured card, you can apply for this type of credit card account outside of your bank, without ruining that relationship. But first, fully understand how a secured credit card account works: Secured cards are for people with bad credit and require a deposit into a savings account tied to the account, typically $300 to $500. If you were to mess up on this type of account, the funds being held as security will be applied to the outstanding balance, and the account will be closed.

I suggest you go to BankRate.com, where you'll find excellent information and a list of secured credit cards available, including each one’s terms and conditions. Read them very carefully. Make sure that you aren’t shooting yourself in the wallet by opting for a card that has excessive fees.

Dear Cheapskate: About six years ago, I decided to work toward becoming debt-free. Not wanting to help the credit card companies get rich by paying lots of high interest, I worked up a plan.

Every six months or so, I would find a credit card company that was offering a credit card with a special six months of zero percent APR on balance transfers with low or no transfer fees, and I would transfer my balance.

In this way, I was able to pay off all my credit card debt while paying little to no interest.

The problem? My husband and I now have 15 credit card accounts, with a total credit limit of approximately three times our annual income.

Currently, I’m trying to close one account about every six months or so to protect my credit score.

Do you suggest that I keep this up for the next seven years, or should I just bite the bullet, close them all, and let my credit rating take a hit? My score is 750. —Juliet T.

Dear Juliet: Given the delicate nature of credit scores and credit limits these days, identify the two accounts that you’ve had the longest and target them as the accounts you want to keep active. Then just sit back and do nothing with the others.

More than likely the companies will cancel these for lack of activity—provided the balances remain $0.00. Because you have so much open credit, losing some of that might well improve your already very good credit score.

While I want to commend you for being so tenacious and clever in getting out of debt, I also want to caution my readers. Your method for paying down debt is a very risky proposition. Zero-percent teaser rates are becoming scarce. And even if you can find and qualify for one, it isn’t easy to hang onto it. If you’re ever late with a payment, you'll get socked with a big default rate.

This tactic is like playing with fire. It’s easy to get burned.