“How We Apply Payments: We will apply your payment to pay off lower-rate balances before paying off higher-rate balances.”
Here’s an example to illustrate what that means: Say you transfer $4,000 onto a new credit card offering 0% interest on that balance for 12 months. While the card has a 0% rate on the balance transfer, it has a 14.24% interest rate for new purchases. From the time you get this card until the transferred balance is paid off, every payment you make will go toward paying down the transferred balance–none of it will go toward new card purchases. So, in this example, any new purchases would incur a finance charge at the 14.24% rate.
Pay That Down
Here’s how that can play out. A cardholder transfers a $4,000 balance at 0%. Once she receives the card, she charges $500 in new purchases. When the bill comes, she pays $500–the same amount she made in new purchases. She assumes there will be no finance charges because all that remains is the $4,000 she transferred at 0%. But that’s not how it works. The credit card company applies that $500 payment to pay down the 0% portion of the balance, while the $500 in new purchases is charged out at 14.24%.
Business Credit Cards
