Dear Let's Talk Credit,

This concerns a major bank credit card. I wrote a balance transfer check in June 2012. I then wrote another balance transfer check in March 2013. The APR for both is 0% for the first 12 months. I calculated my payments so I would pay off these balances before there would be any interest charges, I thought. It turns out that the card issuer is distributing the payments equally on both transfers. This means that my older transfer will not be paid off before 12 months is up. Why can't the card issuer apply my payment to the older balance that has the same APR? There was no balance on the card before I did the transfers. I make monthly payments that are greater than the minimum. Thank you.

- Gary

Dear Gary,

The Credit Card Accountability Responsibility and Disclosure Act of 2009 specifies how card issuers must apply payments made on their credit card accounts. Unfortunately, no rule applies for how payments must be applied for balances with the same interest rate.

The Act requires card issuers to apply payment amounts in excess of the minimum amount due to the balance on the card with the highest interest rate. For example, let's say you have a credit card with a 12% interest rate for purchases, 0% interest for balance transfers and a 25% interest rate for cash advances. If you carry a balance on each of those different categories, payments in excess of the minimum would be applied to the cash advance balance until paid in full. Then payments more than the minimum due would be applied to the next highest interest rate balance.

Before this new rule, card issuers typically applied payments in excess of the minimum to the lowest interest rate balance. That meant that if you were carrying a cash advance balance and a purchase balance on the same card, the only way to significantly pay down the higher interest rate cash advance balance was to pay the lower interest rate balance in full. The change in how payments are applied is generally a good thing for consumers, since it more quickly pays off balances with high interest rates. However, it doesn't help in cases such as yours where a 0% interest or low interest offer has an expiration date and you have more than one balance on the card.

When your 0% interest rate expires on the balance you incurred in June 2012, the interest rate will be higher than the other 0% interest balance on your card. At that point, your payments in excess of the minimum due will be allocated to the higher interest rate balance. I know the goal was to avoid any interest payments, but I hope you can pay off the remaining balance quickly after the interest rate increases.

Your other option is to take advantage of the many 0% interest credit card offers on the market right now and open another credit card with another issuer. If you feel comfortable opening another card, you could transfer the amount owed on your first balance transfer before the 0% offer expires. Do your research and find a card that has no fees and read the fine print carefully. If you decide to take advantage of 0% balance transfers in the future, I recommend you keep only one balance per card so you stay in control of how quickly the balance is paid off.

Let's keep talking!

See related: CARD Act bans payment allocation trickery