What Is Residual Interest On a Credit Card? (And Why It Matters)

Residual interest can surprise you if you think you’ve paid off your credit card, but it typically only applies if you carry a balance from month to month.

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Updated June 20, 2024
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Residual interest can accrue if you carry a balance between billing cycles. It might not show up on your statement balance initially, which could surprise you later if you thought you had completely paid off your balance.

You are likely to avoid residual interest by paying your credit card bill in full each month. If you’re concerned about carrying a balance, a 0% intro APR card could help you minimize interest charges.

Let’s explore how residual interest works so you can learn about the best ways to avoid it.

In this article
KEY TAKEAWAYS
  • Residual interest, also known as trailing interest, occurs only if you carry a balance between billing cycles. If you pay off your balance completely each month, you don’t have to worry about it.
  • In general, paying your credit card bill in full each month is the most straightforward way to avoid all credit card interest.
  • A credit card with a 0% intro APR offer could also help you avoid interest charges on purchases during the introductory period.

What is credit card residual interest?

Residual interest occurs when you carry a credit card balance between billing cycles. This interest accrues between the end of a billing cycle and the date you pay off your balance.

For example:

  1. You carry a $1,000 balance into a new billing cycle. Let’s say the new billing cycle ends on the first day of the month and you receive your statement balance.
  2. You pay off the entire statement balance, including your previously unpaid $1,000 balance, three weeks later on its due date.
  3. Residual interest accrues on your $1,000 previously unpaid balance in the three weeks between the end of the billing cycle and the date you pay off your balance.

In this example, residual interest can surprise you because you paid off your entire statement balance. However, because you carried a balance in the first place, that balance starts accruing interest, which will show up on your next statement balance.

Why you should pay attention to residual interest

If you don’t know what residual interest is or how it works, you could pay off your statement balance and stop paying attention to that credit card.

But if residual interest was accruing, you could actually have another balance due after your next billing cycle. And if you stopped paying attention, you might miss a payment, which could result in late fees and impact your credit score.

Tip
It’s a good idea to set up automatic payments for important bills, including credit card balances. That way, you lower the chances of missing payments and dealing with potential late fees. In addition, late or missed payments can show up on your credit report and impact your credit score.

How to avoid residual interest

The number one way to avoid residual interest is to pay your credit card bills in full each month. If you don’t carry a balance, there’s no chance for residual interest to accrue — simple as that.

But we know it doesn’t always work out like that with credit card debt, so it can help to understand how most credit card interest works in the first place.

Most credit card issuers have grace periods for when interest starts to accrue on your card purchases. Grace periods typically occur between the end of your billing cycle and your payment due date.

That means you can make normal purchases (not cash advances) during a billing cycle and you’ll avoid interest charges on those purchases through the end of the billing cycle and up to the cycle’s payment due date. But if you don’t pay your balance in full by its due date, you’re now on the hook to pay off the remaining balance and any interest it might accrue.

In general, you can avoid most credit card interest, including residual interest, if you pay your balance in full every month.

0% intro APR credit cards

Using a 0% intro APR credit card is another way to avoid most credit card interest on purchases, at least for a certain amount of time.

A credit card with a 0% intro APR offer on purchases gives you a certain amount of time, such as 12 months or more, to make purchases that don’t accrue interest. So you could have 12 months or more of interest-free purchases.

That sounds great, and it often is, but there are a few things to keep in mind:

  1. Interest will start accruing on any unpaid balance once the offer period ends.
  2. Cash advances are typically excluded from the 0% intro APR terms.
  3. You still have to make card payments each month to avoid losing the introductory rate.
  4. Carrying a high balance could affect your credit score because of a high credit utilization rate.

As long as you understand how 0% intro APR offers work, they can be an incredible resource for avoiding interest. If you’re interested in a 0% intro APR credit card, we recommend the Wells Fargo Reflect® Card and Chase Freedom Unlimited®.

With the Wells Fargo Reflect, you can take advantage of two of the longest intro APR offers available:

  • Intro APR on purchases: 0% intro APR for 21 months from account opening on purchases (then 18.24%, 24.74%, or 29.99% Variable)
  • Intro APR on balance transfers: 0% intro APR for 21 months from account opening on qualifying balance transfers (then 18.24%, 24.74%, or 29.99% Variable)

With the Chase Freedom Unlimited, the intro APR periods aren't quite as long:

  • Intro APR on purchases: 0% intro APR for 15 months on purchases (then 20.49% - 29.24% Variable)
  • Intro APR on balance transfers: 0% intro APR for 15 months on balance transfers (then 20.49% - 29.24% Variable)

However, the Freedom Unlimited has something the Wells Fargo Reflect doesn’t — you can earn 6.5% cash back on travel purchased through Chase Travel℠, 4.5% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service and 3% cash back on all other purchases (on up to $20,000 spent in the first year). After your first year or $20,000 spent, earn 5% cash back on travel purchased through Chase Travel℠, 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service and unlimited 1.5% cash back on all other purchases.

FAQ

What is residual interest?

Residual interest is interest that’s calculated between your most recent statement date and the date you pay off your balance. This typically only occurs if you carry a balance between billing cycles. That carried balance still accrues interest because it wasn’t completely paid off previously.

Why is my credit card charging me interest after I paid it off?

This is most likely because of residual interest, which can occur if you carry a balance between billing cycles. The carried balance continues to accrue interest because the grace period is over and your balance wasn’t paid off. Residual interest accrues between the time of your last statement date and the date you pay off your balance.

What is an example of residual interest?

Here’s an example of how residual interest works:

  1. You make $1,000 in purchases during a billing cycle but don’t pay it off, and it carries over into a new billing cycle.
  2. Your new billing cycle ends on the first of the month and you receive your statement balance for the previous period, which includes the $1,000 unpaid balance. Your statement balance due date is in three weeks, which is when you completely pay off the listed balance.
  3. Interest accrues on the previously unpaid balance during those three weeks. This residual interest will appear on your next statement balance.

Bottom line

If you want to avoid residual interest, we recommend that you pay off your balance in full each month. If you don’t carry a balance between billing cycles, there’s no way for residual interest to accrue.

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Author Details

Ben Walker, CEPF, CFEI®

Ben Walker, CEPF, CFEI®, is credit cards specialist. For over a decade, he's leveraged credit card points and miles to travel the world. His expertise extends to other areas of personal finance — including loans, insurance, investing, and real estate — and you can find his insights on The Washington Post, Debt.com, Yahoo! Finance, and Fox Business.