How to Take Advantage of Low APR if You Have Multiple Types of Balances

If you have to use the same credit card you used for balance transfer at low interest rate, you will pay a lot if you do not pay attention to how you are using the card and making payments. We show you how you can save money if you have different types of balances.

In general, credit card companies will try to abide by the Credit Card Act of 2009. One of the provisions in the rule states that the credit card company has to apply the amount paid over the minimum payment due to the higher interest balance.  To understand this, let us assume that you just transferred a balance at zero (0) percent interest.  If you do not use this card and make at least minimum payments in time, you will not pay any interest on the money you borrowed (provided you pay off the full balance by the last date of 0 percent interest period). If you have to use the same card for regular purchases, your credit card statement will show two kinds of balances, one for promotional balance transfer and another for new purchases. In this scenario, you are in a tricky position, here is why:

  • Low APR balance: Interest applied to this balance will be zero percent.
  • Balance for new purchases:  Interest applied to this balance will be significantly higher, sometimes as high as 22 percent.

You must be thinking that you are caught in a big problem and there no way out of it. Fortunately, Credit Card Act of 2009 has a remedy for this issue.  According to this act, here is how your payments will be applied to your balances:

  • If you just pay the minimum amount due, all the money you pay will be applied to the low APR balance. This means your credit card company will charge interest on your new purchase.
  • If your payment is higher than the minimum amount due, the money will be divided into two parts, one for the minimum payment and other for the extra money over the minimum due.  This time, extra money will be applied to the balance that has higher interest rate.

To save money, your monthly payments should be at least the minimum payment due plus amount for new purchases. Some credit card companies may charge interest on the new purchase amount.  You should be able to negotiate the terms of interest calculation or get refund.  You must add the accrued interest to your monthly payment shown above to avoid paying interest on the new purchase amount.

Posted in Credit Card