Credit Smart

Only payments over the minimum go to high APR balances


If you are only paying the minimum payment for a card with multiple APR balances, then the new law doesn’t cover how the issuer applies that payment

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Question for the expert

Dear Credit Guy,
Example scenario: You have a card with balances with two different interest rates. Say you owe $53 interest on one portion of the balance and $27 on the other (total of $80 interest). Your minimum payment is $200. Where does the other $120 go? Is it distributed equally to each balance or proportionately, or does it all go to the lowest interest rate and nothing to the higher one? I’m not asking about paying over the minimum required … I think I get that. I’m just not sure where the rest of the minimum (minus the interest) is applied. — Melinda

Answer for the expert

Dear Melinda,
Just to be sure we are all on the same page, the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act) requires that card issuers apply payment amounts in excess of the minimum payment to the highest interest rate balance. So, if your minimum payment is $200, and you make a payment of $300, the $100 payment amount above the minimum would be applied to the balance with the highest interest rate.

The CARD Act has no such requirements of card issuers in regards to how they must apply minimum payment amounts. The individual card issuer’s policy on how that money is applied when making only the minimum payment would be effective. You can, however, still make use of one of the provisions of the CARD Act to learn what your particular card issuer’s policy is on applying minimum payments.

Card issuers are now required by the CARD Act to place their cardholder agreements online where they are easily accessible and in language that is clear and easy to understand. In other words, you won’t need to hire an attorney just to understand their rules. You can find a copy for your card by visiting the website of the bank that issued your card. For example, if you have a Citi credit card, you would go to and click on the card member agreements at the bottom of the page. On the card member agreements page, you would scroll until you find your particular card and then click on the agreement for that card.

You may also choose the call the 800 number on your credit card or statement, and ask a customer representative your question about how your minimum payment is applied. The representative answering the phone should be able to assist you.

From my experience, most card issuers will apply your minimum payment to the lowest interest rate balance — that keeps you paying the highest rate longer, a situation good for the bank but not for you. If you want to pay down your highest rate balance, you have options. The obvious option is to pay more than the minimum balance due and any amount in excess of the minimum will be applied to the highest rate balance. If paying more than the minimum due is not an option for you right now, your second option is to transfer both balances from your current card to another credit card where, once transferred, you would only have the one balance. Before you make any transfers, always do the math (any balance transfer fees and new interest rate) and be sure you will be gaining from the transfer and not losing.

Lastly, if you are currently only able to make the minimum payment, I suggest that you take a hard look at your spending and strive to make adjustments to increase your payment amount. More importantly, if you are continuing to add to your balances, stop now!

Take care of your credit!

See related:Interactive guide to the Credit CARD Act, Credit card reform arrives in the form of the Credit CARD Act, Credit card agreements now all posted online — find yours, Minimum payments mean maximum trouble with debt, New card statements elicit fear, spur action, An interactive look at your new credit card statement, Clarifying new rules for how card payments are applied to balances



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