Residual Interest; Why Your Last Payment to a Creditor May Not Close Your Account

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Residual Interest; Why Your Last Payment to a Creditor May Not Close Your Account

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With only a few months to go on our debt consolidation plan we have had several accounts reach a balance of zero. 

Each paid off account is an exciting indicator that our hard work is paying off, and one step closer to having our credit card debt eliminated. 

With a recent payment we accomplished another of these victories and followed the same routine we had before. I called CareOne and told them which account was about to be paid off,  the amount to send them based on the last statement received from the creditor,  and to which of our remaining accounts to reapply the funds from now on. 

A few weeks later we received our monthly statement from that creditor, which we expected to be zero. We were wrong.

Even though we paid the full amount before the due date, our new statement had a balance of thirty-six cents.

Residual Interest 

Examining the statement closer, I could see that the thirty-six cents was interest charged on the previous statement balance.  Doing some research I found that this is called residual interest.  Residual interest accrues when your creditor charges interest on your outstanding balance up until the time you make your payment.  The terms and conditions printed on the back of your statement may indicate whether a creditor charges residual interest, not all creditors do.

Payment Difficulties

I ran into another challenge trying to pay my outstanding balance.  Since I thought the last payment would bring my balance to zero, I had instructed CareOne to no longer send funds to that account and to remove it from my plan. 

I would have to make the payment myself, and planned to do it by the due date through an online electronic payment.  When I tried to do so, I got an error message indicating that due to the payment conditions of my account (enrolled in a debt consolidation program), I was unable to make a payment online.  I tried using their automatic phone system to make a payment using my bank's routing and account number, which also failed. 

Talking to a representative, they tried to take a payment using my debit card.

"I'm sorry sir, but our system will not accept that method of payment either."

In the end, the representative said that these failures were no fault of mine, and credited my account the thirty-six cents bringing my balance to zero my account was finally fully closed.

What I Learned

Always Check Your Statements:  You should be checking your balances each and every month anyway to ensure that everything is going smoothly with your payments.  However, it's especially important to make sure you check your statements after you think you've made the last payment to ensure you see a balance of zero.  If I had assumed my balance was zero, and my account closed I would have incurred a late fee of $35 because I didn't take care of a measly balance of a few cents.

Make Your Last Payment Early :  If you do have some residual interest to take care of, don't wait until your due date just in case you run into issues making your payment like I did.  Give yourself enough time to mail that payment in the old fashioned way if you have to.

Have you run into this issue, or any other unique situation when making the final payment to a creditor?  If you've encountered something, chances are others will too!

Related Links:

Riding the Debt Relief Roller Coaster

Will my Debt Management Experience be Worth it?

Supporting my Success with MyCareOne Online Tools

 

Travis Pizel, debt management plan customer with leading provider of debt relief, CareOne Services, Inc. Travis Pizel

Travis is a contributing writer for the A Straight Talk on Debt blog. He is also a very active member of the CareOne community forums. Travis is currently enrolled in a CareOne Debt Management Plan (DMP). Travis candidly shares his personal journey to pay off his debt and the tips he's learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family in Minnesota. You can also read more from Travis on the Enemy of Debt blog, where he is a featured blogger. Compensated Blogger for CareOne Debt Relief Services.

To connect with Travis on Google+ click

You can follow Travis on Twitter @DebtChronicles

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  • I suggest a call to the creditor just before the final payment is made asking them to calculate any additional fees that will be applied after the current balance is paid off. Then pay off the full amount including the residual charges that haven't yet appeared on your account. You still need to check that everything is zero afterward (check again a week and a month afterward to ensure no additional charges were applied later in the month after the payment was processed.

  • That's a good idea, JMK.....I've had my share of conversations with clueless credit card reps, but it's worth a shot.  Thanks for the suggestion!

  • That happened to me a few months ago when I paid off my car. I paid the full balance on my statement and thought I was finally finished with car payments. The next month the statement arrived with a balance due of. $0.20.  I have online bill pay through my bank so I sent a payment through them.  Did I ever feel silly setting up an online payment for 20 cents.  But it worked, and I finally received my paid in full notice.

  • Aren't you glad you looked at your statement, ekellis?  Imagine how silly you would have felt to get a late payment for a balance of 20 cents though, right?  Thanks for sharing your experience!

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