The federal CARD Act of 2009 created rules about how payments should be allocated when there are multiple rates, but not for multiple balances
The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.
The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.
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
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.
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!