Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly “The Credit Guy” column, answering reader questions about credit counseling and debt issues.
Dear Credit Guy,
Recently, several of my creditors have done a very sneaky thing. I often pay well over my minimum payment requirement. I also will often make two or more payments per month if I have extra money on hand. Usually, if I make more than one payment, the second payment gets applied to next month’s minimum payment requirement. Hence, I often have a minimum of $0 due for the next month. However, sometimes the extra payment is received before the end of the previous month’s billing cycle and the extra money I paid is applied to the remaining balance rather than the next month’s payment. Even though the payment came after the due date, it’s before the end of the billing cycle and is applied in the same month as my first payment. This, of course, means that if I wasn’t paying attention, I could unintentionally send a payment to them too early or too late and incur late fees and lose my low APR. I feel that this is very sneaky. Is this practice legal? — Dela
The billing cycle set by your creditor is a fully disclosed cycle that does not change. Your monthly statement clearly states when your payment is due and how your previous payment(s) were applied. No, I do not believe that applying all payments received during a billing cycle to the balances on the account is sneaky. In fact, both payments being applied during the same billing cycle should help you pay down your debt that much faster. The reason? Because the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 states that after the minimum payment is met, all other payment amounts must be applied to the balance with the highest rate. Even if you have only one interest rate associated with the account, extra payments are accomplishing what I assume is your goal of paying down your balance quickly.
The Credit CARD Act also requires card issuers to issue monthly statements in such a manner that consumers have at least 21 days from the date mailed to make a payment. Therefore, you should have plenty of time to make at least the minimum payment due if your extra payment happens to fall in the same billing cycle as your first payment.
To alleviate your fears of unintentionally missing a minimum payment due, you have several options available to you. First, and what I would recommend, is to determine an amount that you can afford to pay each month as your regular payment on the account and have that amount automatically debited from your bank account before your monthly due date. Then, if you have additional money that you would like to apply to the account, you can always send in another payment as you have been.
Second, keep track of your monthly billing cycle and only make your additional payment(s) after the cycle has ended. Or third, keep the extra money in your account and add it to your standard monthly payment.
Congratulations on your efforts to pay off your credit card debt. You might want to save some of that extra money, if you haven’t already, in an emergency savings account of six to 12 months of living expenses. This will help you avoid unwanted credit card debt in the future.
Take care of your credit!
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