Oops! I bought something with my 0-percent balance transfer card
You'll need to do some minimum payment math to avoid interest charges
Let's Talk Credit
Dear Let's Talk Credit,
We just transferred a high-interest balance from one credit card
to another credit card on which we were not carrying any balance, using a 0
percent interest offer they had. We planned it to the month to make sure the
balance is paid by the end of the 0 percent offer in 18 months. Now we've just
purchased an appliance and used the same card with the intention of paying it
off immediately. Since the appliance just hit the card, how do we make sure the
payment we're making goes to clear the appliance charge before they start
charging interest on it and not the balance transfer? -- Mark
Zero percent interest offers are a great way to save money on
interest charges and pay off debt more quickly. However, things can get a little
complicated when the credit card used for a balance transfer is also used for
purchases. Here's why:
The federal Credit Card Accountability Responsibility and Disclosure Act requires that card issuers allocate payments in excess of the minimum
payment to the balance with the highest interest rate. The key
phrase here is "in excess of the
minimum payment due." In your case, the interest rate for purchases is higher
than your 0 percent interest transfer balance. So your payment amount above
the minimum due will be applied to the purchase balance. But, the minimum
payment can be allocated as the card issuer wishes.
Here's the bottom line: To assure that your
appliance purchase is paid in full and does not accrue any interest, you will
need to make a payment that totals the amount of your purchase plus the minimum
amount due. Use a minimum payment calculator to figure out what your minimum payment should be, and call your issuer to make sure you're doing the math right, because credit card minimum payment formulas vary.
It is encouraging that you have a plan to pay off your
transferred balance before the 0 percent interest rate offer expires in 18
months. You have taken the vital step to successfully pay down your debt and
that is to plan your spending so you know you can make the monthly payment
necessary to reach your goal.
To avoid potential problems with repaying your debt within a
specific time frame with a 0 percent interest credit card, I recommend that you
refrain from using that card until the transferred balance is paid in full.
With only one type of balance on the card, you will not have to worry about how
your monthly payment is allocated. Your full payment will be applied as you
want each month.
With that said, you may find you want or need to make another
purchase with credit before your 0 percent interest balance is paid in full. If
you do, keep in mind that when using this card for the purchase, you will need
to make the minimum payment, plus the purchase price of the item, to avoid
accruing interest at the purchase rate.
Let's keep talking!
See related: Survey of top credit card issuers' minimum payment policies
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Published: July 11, 2013