How Credit Card Payments Are Applied
The rule (thanks to the CARD Act)
When you carry different balances at different rates (purchases, a cash advance, a balance transfer, a promotional 0 percent balance), the order of payment matters. Under the CARD Act, the part of your payment up to the minimum can be applied however the issuer chooses, but anything you pay above the minimum must be applied to the highest-APR balance first.
Why it matters
This protects you when you have mixed-rate balances. Say you have a 0 percent promotional purchase balance and a high-rate cash advance: paying more than the minimum knocks down the expensive cash advance first, as it should. Before the CARD Act, issuers applied everything to the cheapest balance to keep you paying interest longer.
What to do with it
Carrying a 0 percent promo balance and new purchases? Know that new purchases may accrue interest if the promo only covered the transferred amount, so paying extra targets the costliest balance automatically. The cleanest approach is still paying the full statement balance when you can. See how interest works and minimum payments.
Frequently asked questions
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