cash or purchase balance

Discussion in 'Credit Talk' started by Mike, Mar 18, 2000.

  1. Mike

    Mike Well-Known Member

    I've been sending extra payments to my credit card company with a letter stipulating that these payments be applied to the cash balance which carries a much higher interest rate. The company replied by letter that they no longer do this because of the high number of payments they receive. The current policy is to apply payments to the lower rates first. Am I being played for a fool? Can they legally do this?

    Anyone have this experience? How'd it go?

  2. creditwork

    creditwork Well-Known Member

    Interesting. I have not really looked into this. I know, you can do this with your mortgage, but credit cards can carry a number of different rates and it is not to their benefit to reduce the higher interest portion of the balance. Their business is to rip the consumer off. Pay the whole amount off and re-borrow at the lower rate. I do this on a regular basis. This is one more reason to always have available credit on hand.
    Deal from strength, exercise your credit.
  3. Mike

    Mike Well-Known Member

    Thanks for the reply.

    Yup. Left alone to do as they will, the CC Companies will stuff their pockets with bone-chilling efficiency. This I understand. But I thought that a concise letter from me stating exactly what I want done with my EXTRA payments would be honored. Am I a babe in the woods?
  4. creditwork

    creditwork Well-Known Member

    I don't know. Read your credit card agreement. It probaly does give them the authority to credit the payment anyway they want. Whenever, my rate goes up, I pay the balance. I have the good fortune of having built my lines to the extent that I can always pay them off when this happens. You can try calling them and asking them to lower your rate, this has worked for some individuals.

    Good Luck and good hunting.
  5. curiouser

    curiouser Well-Known Member

    It's been my understanding that most credit card companies routinely apply all payments to the purchase balance and once the purchase balance is paid off, then they will apply payments to your cash advance line. It appears to be standard industry practice. I just looked at my statements for MBNA, Chase, Citibank and Capital One and all of those have that policy.
  6. J. Edgar

    J. Edgar Well-Known Member

    Congratulations. You have just run into the concept know as 'payment heiarchy', whereby the bank is entitled to apply your payment in what ever manner benefits them the most. You credit card agreement should have a section in it entitled "Application of Payments", or something like that. Bascially payments get applied to balances in the following order:

    1) Past due amounts.

    2) Finance Charges and fees such as annual fees or late charges.

    3) 'Promotional' Balances (typically at the lowest rate first.)

    4) Purchases

    5) Cash advances (typically a higher rate than purchases, but could be the same).

    Some cards even have a statement in the agreement that they will apply you payment in whatever way they see fit. You can be sure that will cost you the most money.

    The only way to deal with this is bundle the whole balance up and transfer it to another card at a promotional rate. This will likely scare the original bank into offering you a promotional rate to get the balance back.

    I personally am greatly entertained by moving my balances around among First USA, Chase, MBNA, Amex/Optima, Capital One, and USAA at rates that rarely exceed 5.9%.
  7. creditwork

    creditwork Well-Known Member

    This is not only amusing, but can be very profitable. I am constantly lowering my cost and at the same time earning 19.47% APR.
    It works for me.
  8. Mike

    Mike Well-Known Member

    Thank You Much Everybody! Life can be like this at times huh. Earthquakes, pestilence, wars, lying politicians, lima beans and credit cards. But the sun will rise tomorrow and I am good to go. Take care of yourselves!

  9. JP

    JP Guest


    One key thing I think you are missing here is what does your CC service agreement state. Most of them are very specific on how payments are credited to the account. If an agreement doesn't specify this (I doubt if they don't) then you have one hell of an argument.


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