Here's how this all went down.
We use rewards credit cards for pretty much everything we buy. I find that it's easier to manage our cash when we only have a couple of withdrawals from checking each month, and we track all of our expenses to make sure we don't overspend. Even though we make purchases using credit cards, we always treat it as if it were coming out of checking and we always have enough cash to pay our cards in full. We get mainly cash back rewards that go straight to our retirement accounts, and have earned as much as $800 in a year. It's not a ton, but it's money we wouldn't get if we were using debit cards for everything.
So, our January credit card bill was $1,063, which we paid in full. Our next month's bill came in at $1,101, which we also set up to pay in full. We had plenty of funds to cover the bill so I set up our Bill Pay to make the payment and forgot about it.
The problem though was that the two amounts were so similar to each other and on the statement the number for "Last Payment Made" is right by the number for "New Statement Balance". Somehow I ended up putting in the wrong amount for payment, and ended up paying $1,063 instead of $1,101…an underpayment of only $38.
Since we hadn't paid the balance in full, we got hit with an interest charge right away. Since we had continued using the card, though, the interest was charged on the $38 we hadn't paid AND everything else we had charged since the last statement. Thank goodness for Mint.com! As soon as we were hit with the interest charge, Mint shot me an e-mail alert. Any guesses how much the interest was? $21!. Underpaying by $38 caused a finance charge of $21….wow. More than half of what we didn't pay we were being charged as interest! I know they calculate interest differently, but from my view, that's like charging me 663% interest! ($21/38 * 12 months).
I know that if I were to tell this story to Dave Ramsey this is when he'd come back with something like "See, that's why you don't use credit cards!" or "If you don't use credit cards, you don't accidentally get into debt." Technically, he's right. I never would have to worry about this if we stuck to debit cards, and we'd never have to worry about overdraft fees since we always keep a large minimum balance in checking. In reality though, even if I made this mistake once a year, it would still be worth it to me to pay $21 in 'stupid tax' and still be able to collect $700-800 in cash back rewards.
I decided to suck up my pride and call my credit card company to plead for mercy. Apparently this sort of thing happens all the time and when I immediately paid the difference, they were able to reverse the interest charges and treat it as if it never happened. The phone call took about 5 minutes and I didn't really even have to beg. It sure was a blow to my pride though, so I'll be sure to pay more attention going forward. I've always been able to say that I have never paid interest on a credit card, and thankfully that is still true.