USA   |   UK   |   Australia   |   Canada
ADVERTISEMENT

Two balance transfers means payment dilemma

2009 law created payment allocation rules, but they don't cover this

By

Let's Talk Credit
Let's Talk Credit columnist Jane E. McNamara
Jane E. McNamara is president and chief executive officer of GreenPath Debt Solutions, a nationwide, not-for-profit, providing financial literacy through consumer education and counseling for more than 50 years. For financial literacy tips and assistance visit GreenPath on Facebook or YouTube.
Ask a question.
'Let's Talk Credit' archive

Question for the CreditCards.com expert

Dear Let's Talk Credit,
This concerns a major bank credit card. I wrote a balance transfer check in June 2012. I then wrote another balance transfer check in March 2013. The APR for both is 0 percent for the first 12 months. I calculated my payments so I would pay off these balances before there would be any interest charges, I thought. It turns out that the card issuer is distributing the payments equally on both transfers. This means that my older transfer will not be paid off before 12 months is up. Why can't the card issuer apply my payment to the older balance that has the same APR? There was no balance on the card before I did the transfers. I make monthly payments that are greater than the minimum. Thank you. -- Gary

Answer for the CreditCards.com expert

Dear Gary,
The Credit Card Accountability Responsibility and Disclosure Act of 2009 specifies how card issuers must apply payments made on their credit card accounts. Unfortunately, no rule applies for how payments must be applied for balances with the same interest rate.

The Act requires card issuers to apply payment amounts in excess of the minimum amount due to the balance on the card with the highest interest rate. For example, let's say you have a credit card with a 12 percent interest rate for purchases, 0 percent interest for balance transfers and a 25 percent interest rate for cash advances. If you carry a balance on each of those different categories, payments in excess of the minimum would be applied to the cash advance balance until paid in full. Then payments more than the minimum due would be applied to the next highest interest rate balance.

Before this new rule, card issuers typically applied payments in excess of the minimum to the lowest interest rate balance. That meant that if you were carrying a cash advance balance and a purchase balance on the same card, the only way to significantly pay down the higher interest rate cash advance balance was to pay the lower interest rate balance in full. The change in how payments are applied is generally a good thing for consumers, since it more quickly pays off balances with high interest rates. However, it doesn't help in cases such as yours where a 0 percent interest or low interest offer has an expiration date and you have more than one balance on the card.

When your 0 percent interest rate expires on the balance you incurred in June 2012, the interest rate will be higher than the other 0 percent interest balance on your card. At that point, your payments in excess of the minimum due will be allocated to the higher interest rate balance. I know the goal was to avoid any interest payments, but I hope you can pay off the remaining balance quickly after the interest rate increases.

Your other option is to take advantage of the many 0 percent interest credit card offers on the market right now and open another credit card with another issuer. If you feel comfortable opening another card, you could transfer the amount owed on your first balance transfer before the 0 percent offer expires. Do your research and find a card that has no fees and read the fine print carefully. If you decide to take advantage of 0 percent balance transfers in the future, I recommend you keep only one balance per card so you stay in control of how quickly the balance is paid off.

Let's keep talking!

See related: CARD Act bans payment allocation trickery

Meet CreditCards.com's reader Q&A experts
Vexed by a personal finance problem? CreditCards.com's Q&A experts answer questions from readers every weekday. Ask a question, or click on any expert to see their previous answers.
Gary Foreman, New Frugal You columnist Gary Foreman,
"New Frugal You"
Sally Herigstad, To Her Credit columnist Sally Herigstad,
"To Her Credit"
Tony Mecia, Cashing In columnist Tony Mecia,
"Cashing In"
Barry Paperno, Speaking of Credit columnist Barry Paperno,
"Speaking of Credit"
Elaine Pofeldt, Your Business Credit columnist Elaine Pofeldt,
"Your Business Credit"
Erica Sandberg, Opening Credits columnist Erica Sandberg,
"Opening Credits"

Published: May 16, 2013



Join the discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Three most recent Lets Talk Credit stories:

Share This Story




Follow Us!


Credit Card Rate Report

Updated: 10-26-2014

National Average 15.07%
Low Interest 10.37%
Business 12.80%
Balance Transfer 12.82%
Student 13.14%
Cash Back 14.98%
Reward 15.05%
Airline 15.46%
Bad Credit 22.73%
Instant Approval 28.00%

ADVERTISEMENT
ADVERTISEMENT