August 6, 2012

As I said in the very first musing, the subjects could be about *whatever *from *whomever. *The first two were on the subject of self-publishing and received many compliments. I will now see how the reaction is to the exciting subject I refer to as the funny, fuzzy math of credit cards.

I remember when credit cards did not exist, at least not for me You paid by cash, check or charged it, if merchants would take your check or allow you to charge it, and for extended travelling you purchased travelers’ checks in advance. I don’t know how anyone survived before the plastic came along, but somehow we did.

I now have 5 credit cards and have long thought: *what a deal:* miles, points, perks, no daily concerns about cash, buy now and free credit for a month or so – *if *you pay your monthly balance in full and on time. I was 3 days late once and incurred what I thought was a horrendous penalty and interest charge. My fault, I said. I was late. I’ll never let that happen again. But some people don’t pay their full balance when due and often soon find hemselves in over their heads. I understand that extenuating circumstances can occur and some people can’t help it. But why so many? An experience a few months ago gave me a clue.

I wired $2890 (and some cents) to pay off one of my cards, on time as always. The next month I again wired the full amount due (about $3000 and on time), not noticing among the many charges an interest expense of $17. The following month the card bill was only about $200, so it was easy to spot that it contained an interest expense of *$76!* I checked my back card statements and discovered that I had transposed a number (I had a little dyslexia as a kid). The old balance due had been $2980, not $2890. I called the card company to inquire and a lady quickly assured me the charges were correct because they were all done by a computer. I asked her to explain. I was polite, but I was pissed. From my point of view I had been charged $93 in total interest because I had underpaid by $90 for one month and had already been charged $17 interest the month after, which should have more than covered my mistake (24% interest rate, or 2% a month would only have been $1.80). The lady put me on hold and when she returned she was much nicer, told me it was obvious that I had intended to pay the full amount and that she would credit my next statement for *all* the interest charges. So I went away happy.

But it made me think. I’d had this same credit card for more than 30 years and had a $52,000 credit line on it. What if I had been a poor credit, or uneducated, or didn’t speak English well? Would it have been so easy? For the first time ever I decided to check each of my cards to see how in the hell they calculate the interest rate. But just as important, on what *amount* do they apply the rate.

Each card was different and impossible for me to understand. One of the oldest and largest issuers in country didn’t even try to explain. It simply said: “We use the Average Debt Balance method to calculate the balance on which we charge interest on your Account. Call the Customer Service number for more about this balance computation method and how interest charges are determined.” I haven’t called them, but I may, just for giggles.

The card I complained about describes ad nauseum several different methods of calculations, but I’ll only describe the method they applied to me. It’s complicated enough. “To get an average daily balance (ADB), we take the balance at the end of the previous day, add new charges, subtract payments and *make adjustments (what).* We add the daily balances and divide by the number of days in the billing period. We figure the interest charge by multiplying the ADB by the

*monthly*periodic rate,

**by the**

*or**daily*periodic rate and by the number of days in the billing period,

*as applicable (??)*. It goes further to say: “We will not charge you any interest on purchases if you pay your New Balance by the due date each month. If you do not pay the New Balance in full by the due date, you will not get a grace period on purchases until you pay the New Balance in full for

**billing periods in a row.” None of my other cards mentioned two months, but how I am to know? (Italics and emphsis all mine)**

*two*So maybe the lady was right and the computer had done the calculation the way the way the bank intended. But I still don’t see how they can compute $93 of interest when I only underpaid $90 for one month. Sounds like fuzzy math to me. Or usury. The moral is: if you can’t pay all your bills on time, don’t go into hock on your credit card. Try anything else. Even the local loan shark. You might even be better off robbing a bank.

Thank you for stopping by.

**N****o Commitments **should finally be out on Kindle this week.