Credit Card Q & A: If I have a balance with two different APRs, how is my payment allocated?

Published

April 5, 2011

A consumer advocate, Beverly Blair Harzog focuses on credit card issues and provides insight about current news that affects the credit card industry and consumers. She's a nationally recognized expert on credit card issues and is also the co-author of Confessions of a Credit Junkie. Visit Beverly at BeverlyHarzog.com.

Credit Question: I have a balance on a credit card with two different APRs. If I pay more than the minimum, does my whole payment reduce the balance with the higher APR? – Ken

Answer: Hi Ken,

Paying more than the minimum is a smart strategy. You’ll get out of debt faster and save money on interest expense.

Before the Credit CARD Act of 2009, issuers were free to apply payments in excess of the minimum to the balance with the lower APR. But now, the CARD Act requires issuers to apply the amount in excess of the minimum to the balance with the higher APR.

Here’s an example of what happens when you make a payment that exceeds the minimum. Let’s say your minimum payment is $100. You make a $150 payment. First, the $100 minimum payment is applied to the balance with the lower interest rate. The $50 that you paid in excess of the minimum is applied to the balance with the higher APR.

Having said all this, it’s possible that some issuers might choose to apply minimum payments to the balances with the higher APR first. The way payments are allocated is usually spelled out in the disclosure statements. But legally, issuers are only required to apply the excess amount to the balance with the higher APR.

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