Quick question about how Credit Cards work

SyrupSponge_2

Hi, I've got a new credit card with MBNA which has the long 0% interest deal on balance transfers, which is great.

I'm also planning to use it for a regular payment to someone via paypal, and the monthly payments I'm planning to make to MBNA are around twice this - the idea being that the balance reduces over time before the interest-free period runs out.

My question is, will these purchases I'm making accrue interest? Or will the fact that I'm technically paying them off every month mean that I only pay interest on the balance transfer part of my card balance (at 0% during the promotional period). Or is it card specific and should I just contact MBNA?

Cheers

Tixy

As you will not be repaying the whole outstanding balance each month then you will be charged interest on the ongoing purchases from the date of purchase to the date of payment for each transaction.

Best option in this situation is to use a separate card for the ongoing spending and repay that card in full each month.

Ebe_Scrooge

Check the T&Cs on the card, they will clearly show how payments are allocated. Some cards are different, but it always used to be the case that payments were allocated to the lowest interest rate first - so in effect, the payments went towards your balance transfer, meaning you pay interest on the full amount of your purchases. Which is why the golden rule is ( or was ), "never spend on a balance transfer card".

I have a feeling the rules on this may have changed recently ( happy to be corrected on this ). But to remove any doubt, check the terms and conditions, it will tell you quite clearly the order in which payments are allocated.

CLAPTON

Ebe_Scrooge wrote: »

Check the T&Cs on the card, they will clearly show how payments are allocated. Some cards are different, but it always used to be the case that payments were allocated to the lowest interest rate first - so in effect, the payments went towards your balance transfer, meaning you pay interest on the full amount of your purchases. Which is why the golden rule is ( or was ), "never spend on a balance transfer card".

I have a feeling the rules on this may have changed recently ( happy to be corrected on this ). But to remove any doubt, check the terms and conditions, it will tell you quite clearly the order in which payments are allocated.

this is now totally wrong although there are reasons to have two cards one for 0% BT and one for spending and paying in full each month

Ebe_Scrooge

CLAPTON wrote: »

this is now totally wrong although there are reasons to have two cards one for 0% BT and one for spending and paying in full each month

Thanks - I did think I'd heard the rules had changed about how they were allowed to allocate payments. Thanks for the clarification.

King_Of_Fools

Although payments will now clear the debt with the highest interest rate first (the purchases) because your are not paying the bill off in full will mean that you do not get the standard 56 days interest free period on purchases and interest will be accruing from the date of purchase until they are paid off. So you will still be paying unnecessary interest. As Tixy says, the best thing to do is use a different card for purchases, that way you will not pay any interest.