Multiple Rates On Credit Cards

We all have credit cards and we look at the bottom of statement and see all these multiple rates. Rates for balance transfer, new purchases and cash advances.

What are all these rates?

Well they are how credit cards make money. Let's take an example to explain.

You transferred a balance of $4,000 from one card with a higher rate to one with a rate of say 0% for life credit card or balance paid off.

Your first thought is this is a great card with a low fixed rate of 6%. Then one day you go to your local department store and charge $500 of clothes on your new 6% credit card which is much lower than the 21% department store card.

Once again you think you did a great thing by using this credit card.

Well friends let's fast forward to when you receive you next bill. This is what you will see:

Balance Transfer Balance of $4,000 Interest Rate 0%
New Purchase Balance of $500 Interest Rate 12.99%
Cash Advance Balance $0 Interest Rate 22.99%

You send in your regular payment of $200. Guess where that entire payment goes to? Two guesses?
1. Payment goes to Balance Transfer balance?

2. some goes to Balance Transfer and some to New Purchases?

Answer the entire payment goes to 0% Balance and the New Purchase Balance continues to accrue interest until the Balance Transfer is paid off.

A little rule most credit cards have is that your entire payment goes to your lowest interest rate and ZERO goes to any other rate.

I have seen so many people make this mistake of using a credit card they transferred a balance to get a lower rate.

LESSON: Whenever you transfer a balance for a lower rate make sure you review what the New Purchase Rate on the card.

If the New Purchase Rate is higher than the Balance Transfer Rate do not use for ANY new purchases. Hope this helps.