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Wednesday, February 10, 2010

C.A.R.D law reverses order of credit card payment application--Woot

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This post has been included in the Carnival of Debt Reduction hosted by Ask Mr. Credit Card
I don't know how I missed this before, but in reading the fine print on my credit card terms and conditions, it appears that now payments will be applied to the highest rate charges first. As you may know, until now, the typical practice of big issuers was to apply payments to the lowest-rate balances.

Here's how it affects me.

I have had a Citibank card for a long time. I never used it for spending, just for balance transfers. I took advantage of a balance transfer offer of 2.99% for the life of the balance some time ago. A year or so later, I did the same thing for 3.99%. And 4.99%.

And then I got into trouble (business bad, husband unemployed), missed a few other payments, and got socked by Chase's universal default clause. You can find the back story here, here, and here. The Chase rate skyrocketed to close to 30%. After no luck negotiating with them to lower it, I decided to transfer the balance to a few other credit cards, including Citbank at something like 8%. But it was only for 8 months, not for the life of the balance.

At the end of the 8-month period, the Citi rate went up to 21.99%. I should mention during this period I hadn't been late on any payments to Citi or any other creditors. And I couldn't do much about it, because I didn't have the money to pay off the whole balance at once, and my monthly payments were going to the lower-interest debt.

But, thanks to the Credit Card Accountability, Responsibility, and Disclosure Act (C.A.R.D), as of February 22, the payments will first go to the higher interest debt. Which gives me  a fighting chance of paying it off.

Polly's Pointers:

1. Check your credit card terms.  Some new fees are coming. Some good things might happen as well.

2. Be mighty careful playing credit card roulette with balance transfers. It's like gambling at the casinos. The house always wins. 

More information:
White House Fact Sheet

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