Credit Card interest is one of those things that get a lot of people in trouble financially, perhaps because, most of us don’t exactly know how it works. The truth is, although it’s not super complicated, it is a little trickier than you might think. And I’ll start by saying that there won’t be any need for you to be settling any profit on your pay-later cards as long as you settle off your report left-over in full by the due date every 30-days.
However, if you do end up carrying a left-over on your pay-later card, this is how the profit gets billed at the end of the 30-days.
Every pay-later card has a profit cost that’s generally around 12-25%. And for this example, I’ll be assuming that you have a pay-later card that’s let’s say charges you 20% in profit annually. If you didn’t settle off your report left-over in full and you now have a left-over of P1,000 on your pay-later card. Well, you’ve opened up the can of worms for your pay-later card to make this example easy.
So, let’s just come up with an imaginary billing cycle on your once in a 30-days report so that you could have a better understanding. Now, on June 1st you owed P1,000 on your pay-later card, on June 10th you spent P100, on June 20th you paid P400 on your pay-later card and on the last day of the 30-days on June 30th, you paid another P100 on that pay-later card.
So, now your total amount for the report left-over is going to be P1600. Pay-later card profit costs are often calculated on what’s called the standard daily left-over method, and before we can know how it works, you’re going to take each day’s total left-over for that 30-days and add them all together.
So, Day 1 through 9 was P1,000 per day,
The 10th day through the 19th day was P1100 per day,
The 20th through the 29th was P1,500 per day
And then you had the very last day at P1,600. Now add these all up, and you’ll get the number P34,000. Then, divide that by 30 because there are 30 days in June. From there, you’ll have your standard daily left-over of P1133. So now that we’ve got our standard daily left-over figured out, we need to figure out how much profit we’re going to be billed for that amount of money. Now, remember that you’re going to be using a 20 percent profit cost here as agreed earlier in this article. And whatever your actual profit cost is that’s the number you want to be plugging into this equation. So, take that 20% and divide it by 12 30-dayss. At that moment, you’ll get the daily profit cost billed on your calculator. Now, take that daily cost and times it by the 30 days, and you’ll have a 1.62% profit cost. On doing that, now take the 1.62 profit cost and times it by your standard daily left-over. And there you go, P18.35 is what you’re going be billed for that 30-days and profit.
So basically, profits are being billed after every 30 days of not settling a left-over on your pay-later card, using the above profit calculation method.