Payment hierarchy

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Some of my credit card card suppliers have let me know that they are changing to a positive payment hierachy, ie paing off the most expensive debt first. As several did this at much the same time I presumed it must by because of a new regulation [why would they otherwise?]

But I asked Barclaycard about a balance transfer and was told that they would pay off the 0% balance first.

Have the rules changed, or is there an attack of conscience out there?

Comments

  • chattychappy
    chattychappy Posts: 7,302 Forumite
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    They all have to change by January (not sure of the exact date). I think there will be some interesting effects.

    Eg, if you did a large BT at 0% requiring a minimum repayment of, say, £200 a month, then effectively you will be getting (almost) 0% on a further £200 of purchases each month.

    I say almost, because as you put purchases through you will pay purchase interest at a standard rate until your monthly payment arrives. Under new rules this must then be applied to the purchases first (because of higher interest rate). Provided your repayment exceeds your purchases, interest on your purchases will stop. So say your purchase rate is 2% a month (APR 26%) and purchases are spread throughout the month evenly, then you will pay on average 2 weeks interest - or 1%. So just 1% and then nothing more until the end of your 0% period. If you time your purchases so they occur just before your repayment then this can approach zero.

    Certain cards only: reduce your minimum repayment to near zero during 0% deals
    Now here's a sneaky one. If you have a Zero card (and certain others) then there is no fee on cash advances. So you can effectively reduce your minimum repayment to near zero by withdrawing the cash for your repayment shortly before the repayment date (cash interest starts) and then make the payment (adding a little to cover a few days interest which stops when payment received). The payment will be applied to the withdrawal you just made first, before the balance at the time of the withdrawal. This can maximise the value of any 0% offer. The interest charged will be tiny - eg if it takes a week for the repayment to reach the account, then on APR26% on cash, and a minimum repayment of 2%, the interest charge would be about £1 on a balance of £10,000. Of course there is no need to leave it until a week before the due date - whenever you do it you will only pay interest between the time of the withdrawal and when the payment hits the account.

    Obviously you'll have to face the debt in the end the CC might decide they don't want this kind of customer!

    Perhaps other posters can comment on the above and whether it matches their understanding of the new regime.
  • TheMaestro888
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    Thanks. I declined the offer when I was told that the payment hierarchy was still negative. Perhaps Barclaycard will change soon.
  • exel1966
    exel1966 Posts: 4,978 Forumite
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    They all have to change by January (not sure of the exact date).

    New regulations come into force on 01/01/11, however MBNA changed a few weeks ago.
  • tobycgraham
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    Hello, have a quick question regarding this. So, I recently got a Santander zero credit card (no charges on spending abroad) because I was going on holiday and wanted to buy a camera. When I got back I paid off the card in full not having received a statement, because I want to transfer a balance from another card onto this one. I phoned and checked the balance today, which was £0, but have not received an official statement. If I transfer the balance now will I pay any interest ? thanks
  • bobbydrake50
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    I had a letter from Barclaycard a few weeks ago and they are changing from 26th November so any payment after that date will pay off the higher interest balance first.
  • cse
    cse Posts: 168 Forumite
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    Of course there is no need to leave it until a week before the due date - whenever you do it you will only pay interest between the time of the withdrawal and when the payment hits the account

    This is NOT TRUE and potentially a very costly misunderstanding. Payments will be allocated against transactions that have already appeared on your statement before they are allocated to 'current cycle' transactions. At the very least you will be paying interest between the date of the withdrawal and the date of your next statement
  • chattychappy
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    cse wrote: »
    Payments will be allocated against transactions that have already appeared on your statement before they are allocated to 'current cycle' transactions.

    Not according to the T+Cs I'm looking at (MBNA) which does not make such a distinction. Quite possibly others are different.

    (I remember such a distinction being made in pre-change T+Cs.)
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