Thread: Balance transfers and the new credit card law

I have a concern about the new credit card law, about the provision that credit card companies will pay off the high interest first before the low interest.

I just paid 3% on several balance transfers that will last me 1 1/2 years at a 2.99% APR. I figured that it will take me three years to pay off the debt already on my credit cards due to medical bills, and that meanwhile I will paying low APR on balance transfers, with my payments being applied to the low APR.

But NOW the banks will apply payments to the high APR first - which has its advantages for many people in diminishing the high APR. But in my case since it will take years to pay it off anyway, it looks like a huge disadvantage.

If (hypothetically), I have $5,000 worth of balance transfers for 1 1/2 years on two cards where I already have $5,000, and I pay $275 a month in monthly payments, then in 1 1/2 years, I've paid $4950. But with the new credit law, will the $4950 be applied only to my high interest credit and so that I would SACRIFICE the low APR for the balance - for which I've just paid 3% or about $150? Would it not be used at all?

If so, then balance transfers for people like me who are worthless and costly.
Can anyone clarify?

Let's say your card had $2,000 at 10% interest and a $3,000 balance transfer at 0%. All the law means is that payments will first be applied to the 10% balance, before the 0% balance. This benefits you; it doesn't hurt you or cost you any more. Does this make sense?
_________
No, actually it still doesn't make sense. If I just paid 3% for a balance transfer of $3,000 for 2.9% interest that lasts a year, but my card has a balance on it I can't pay off for a year or more, then what I pay in the next six months will be applied to my previous balance rather than my balance transfer. During that year, am I still benefiting from the balance transfer? In other words is $3,000 in my account still getting only 2.9% interest? That's what I'm trying to clarify.

that you would still be getting the promotional rate. Your payments would first be applied to the balance at the higher rate, which presumably is higher than your promotional rate.

Where this potentially hurts you is if you fail to pay off your "old" balance at the non-promotional rate in time to start making payments that apply to your promotional rate balance so as to pay it off before the promotional rate expires. This could be a significant issue if that promotional rate balloons to something outrageous at the end of the promo period.

I used to be a big time card surfer back when it was fun. If I were you I'd snag the best rate you can get for as much of your debt as you can for at least 6 months and ideally 12 (anything less than 6 is a waste of time and money).

Several months prior to the expiration of the deal, start sniffing around for something better. I'm starting to get all kinds of 0% balance transfer checks and other crap in my mail again, and I've repeatedly asked the CC companies to take me off their promo lists.

For people with good credit scores the deals will be coming back, I think. I'm not carrying CC debt and don't plan to again. But for those who do, it pays to read the fine print and work all the angles. Hold up your end of the bargain to a T and there really isn't anything bad that will happen to you as long as you're squeaky clean and completely informed about the rules and assertive about your rights.

You are absolutely right!! After February 22, 2010 all additional payments made to your credit card will go to the highest interest first. While this initially sounds like a great idea, it is not for those with transfer balances on their account.

If you have any balance transfer added to a charge already on there, that balance transfer can NEVER be paid by the time the rate increases. Your extra payment will go to the highest owed.

I was in a similiar situation and I took out a loan from my credit union to pay off a fairly new 1.9% balance transfer. That offer was going to expire in December and jump up to 21%. I am still getting offers in the mail to do balance transfers and they do NOT disclose the new law. I don’t see a low balance transfer as a benefit in any way. Once you do that the card is either useless since you can't use it or you won't benefit from that low rate ever. The only reprieve you would get is if you transfered to a fresh card and had the advantage of a low rate for a while. Either way, its a teaser rate that will jump to over 20%.

It looks as if you transfered a few cards into one to consolidate. This was a smart move. So what do you do now?

All you can do is keep paying on the card and let the higher interest go down. Consider the lower interest portion of the card a delay in paying the high interest amount. You would have paid more if you didn't consolidate. The real problem will be when you lose the low rate and your interest jumps up. Keep doing the best you can and try to pay off what you can. Hopefully you will be able to do another type of transfer to get a fixed rate loan to pay off that card when it comes time to lose the rate. The best scenario would be to get a low interest loan and transfer it all to that.

You sound like a really good person who is trying to do the right thing. I did read that you had medical problems which added to your debt. Be well and focus on staying healthy. You can only do so much with what you have to work with. Be hopeful that your situation will get better. Stay positive.

cbear makes a great point. If you have tansfered your balances and DO NOT PLAN to increase those balances - you probably would be better off finding a term loan to pay off those cards - should be much cheaper in the end.

If that is not possible - as stated - when you get close to your transfer rate jacking up - switch again to another low rate or you could even do it now (to a totaly different company) then split your month payments to cover current balances with your current company and your transfer balances with your new company.

I am not sure about your card company - but, some will allow you to dictate where your payments go - i think that the 'highest interest' policy is a defult policy. Call your company and ask if you can dictate how your payment is spread out - but, do remember, paying highest interest first will save you money in the long run.

Chase apparently are completely within their rights to break the law. Here is what they told me.

You just saved me the trouble of reposting