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This Credit Card Advice Will Save You Big Money

credit cardLook ... there is a little known fact regarding paying back your credit card debt that I was "blissfully" unaware of. I feel actually stupid for not looking into to this sooner, but "better late than never" I guess. Hopefully you are already aware of this, but just in case you aren't, you will now be armed with knowledge that can save you BIG money in credit card interest. Without further adieu, here's what I recently found out....

Recently, I decided to make a concerted effort to pay down the balances on the few credit cards I own. If you are like me, my credit card balance is a composite of a few different interest rates since I have taken advantage of a number of "reduced interest rate offers" that they sent me. To be clear, I'll give you a fictitious example: My current credit card balance is a total of $1,000 of which $500 has the standard interest rate of 15% and the other $500 has a "promotional' interest rate of only 5%. Lets also say that the monthly minimum payment on this card is $60. Now here's where it gets interesting. I wanted to find out the following: If I send in a payment a bit over the minimum, which interest rate "balance" would it be applied to? I called my credit card company to find out. Did you know:

  • If you only send in the "minimum payment due", it will go 100% to the LOWER interest rate!
  • Anything you send in above the minimum will then be applied to the higher rate (or rates, in case you have multiple promotions going on at the same time)

Think about this for a second... as a customer, you would hope that they would apply your payment to the highest interest rate first in order to save yourself money in interest payments, but this isn't necessarily the case. In my scenario, if I just sent in the $60 minimum payment, all $60 would be applied to the lower "promotional rate" of 5% allowing the other $500 to continue to accrue interest at the rate of 15%! Ouch!!!

So here's the bottom line: If you can't payoff the entire balance monthly, you've got to find a way to send in the most you can afford OVER the monthly minimum in order to reduce the amount paid on higher interest rate balances. DON'T BE LULLED INTO A FALSE SENSE OF SECURITY THINKING THAT SINCE YOU TOOK ADVANTAGE OF THE "SWEET PROMOTIONAL" OFFER THAT THEY SENT YOU, THAT YOU ARE PAYING BACK THE HIGH INTEREST RATE BALANCES FIRST.Only after you meet the minimum payment amount, will this be the case.

"Ignorance is bliss" in this case, can cost you thousands of dollars in additional interest payments over time.I hope this eye-opening fact helps you make the wisest financial decisions possible.


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