Another reason to pay your credit card balance in full every month: returns

There are several reasons you should pay your balance in full every month.  I recently discovered yet another. 

A few weeks ago, I purchased a converter box for my analog TV. The experience was difficult and embarrassing, considering that few stores still carry converter boxes and that I’m probably the only person in the world who doesn’t have cable. (I haven’t had cable in over 10 years.) 

After installing the box and antenna, I realized that I couldn’t get ABC and that some of the other channels didn’t come in strong.  What a waste of almost $80!  I returned the box and accessories a few days later, but I wondered if I would pay any finance charges to my credit card’s bank during the time I had the products.

Here’s the answer. Let’s assume that my $80 transaction is the only purchase on my credit card, and that the transaction occurred on the first day of my 30-day billing cycle.  If I had waited too long to return the items—longer than my billing cycle—and hadn’t paid my balance in full, I would have lost money.  In other words, I would have paid finance charges on my daily balance of $80.  If my Annual Percentage Rate (APR) was 15.9%, and thus my Periodic Rate was 0.04356% (APR divided by 365 days), I would have ended up paying about $1.05.

So, in short, even if you a return an item and get a full refund, you can still end up paying finance charges on the money you borrowed from the bank. Just make sure you return items within the billing cycle you purchased them.

Related article(s): [ How paying your bill early saves money ]