Paying off a loan

Unless you were born wealthy, many of us have had or will have loans, but I just want to offer this brief advice concerning paying them off.  Aren’t you so excited when you finally pay off your credit card, or that small loan? When you get to the point of that final payment, you have to be careful to avoid extra interest charges.  

Case in point, I’ll use a hypothetical example:  Jerry finally paid off his credit card debt by putting out  $1,000 on 6.7.13.  He had closed the account, but was still working on paying off the balance. Jerry’s billing statement ended on 6.22.13;  Jerry was glad to have that BURDEN off him.  Next month, he received a bill cut on 7.22.13 that stated he owed an additional $4.00.  He was LIVID and insisted he had paid in full, but the credit card company explained that was the interested he owed.  So reluctantly, he paid up again.

This can really happen to you.   In this case, the company charged Jerry interest from the time he made the “final” payment until the end of his next billing cycle.  The amount, although nominal, is troubling.  Some tips to avoid Jerry’s fate:

1) Remember that when dealing with loans and credit cards payment is usually applied to interest (extra amount derived from your interest rate and the amount you owe) and principal (the amount you owe).  Payments are applied to the interest and principal according to a formula.  If you don’t pay a certain amount above your minimum amount due, you may end up paying more interest in the long run.

2) At the time of your final payment, ask for an official letter stating your balance is paid is full. This is easy to do, even if you prefer to pay bills online.  It’s as simple as a quick email, and it could save you time and help you if necessary.

3) Or, make your final payment with an agent on the phone, but make sure there is no additional service charge.  At that time, you can ask what the interest would be and how much you need to pay at that point in the billing cycle to keep from incurring additional bills.  Basically, your amount due, is deceptive because they are using a formula to collect interest at all times on that amount.

4) If you make a final payment, and request a letter stating your account is paid in full (for a closed credit card account only or loan) you have some bargaining power.  If you do incur another final bill, consider arguments in your favor:

  • That you have a letter stating your account was paid off (obviously)
  • That you spoke with a customer service agent at the time of payoff (if applicable) and provide the confirmation number from your interaction.  Always get a confirmation number!
  • That you have made all your payments on time generally (hopefully) and since you are a “good” customer, it is really bad for them to treat you this way
  • And keep this one for a last resort–that you’ll never do business with them again because of the way they deceived you.  No business wants to loose future business, so in the course of “good will,” they will cave, and you will prevail.

Watch out for that interest y’all.  It’s a real bubble buster.

Disclaimer: This blog is Commentary Only and nothing here is to be interpreted as legal advice, solicitation, or any claim that the quality of legal services offered by The Keli R. Edwards Law Office, LLC is greater than the quality of legal services performed by other lawyers.  I welcome your feedback and comments!