Order in which items are paid off when paying credit card balance

bright_king7

I have a 0% balance transfer credit card onto which I have transferred a few balances (around £6000) within the required timeframe. The offer is that as long as I pay the minimum amount each month, I will pay no interest for 13 months. That part is all clear to me and I have set up a direct debit to pay the minimum amount each month.

Recently, I made a large purchase (around £3000) on this credit card, with the intention of paying off this purchase amount by the due date of the statement on which the purchase appears. The credit card has interest associated with purchases but also says that if the balance is paid off in full by the statement due date, no interest would be due.

1. In the statement in which I made this purchase, there is already an interest charge showing on it. I have queried this with the bank through several chat messages (they weren't very clear) - my understanding is that the interest charge shown is because my direct debit is set to only pay the minimum amount and if I were to pay the full balance, this interest payment would not be due. 
Is this standard operation to add interest to the balance even though I would not need to pay it if I paid off the statement balance?

2. They also said that I would have to pay the "full" balance, i.e. the purchase amount and the balance transfer amount in order to avoid paying any interest. I queried that this does not seem correct given that interest is only charged on purchases and my 0% balance transfer deal is still in operation. The bank was not able to answer me clearly but it seems that if I only paid off the purchase amount of £3000 plus the "minimum payment" on the balance transfer, I would still be charged interest. This does not seem correct or reasonable to me.
Is this normal operation? I thought that when you pay off part of a credit card balance, the highest interest-bearing line items are paid off first (in this case, it should be the "purchase" because the "balance transfer" has 0% interest), which would mean that I would not be liable for any interest payments.

eskbanker

Yes, this is normal and is why it's not a good idea to mix non-0% purchases with 0% BTs - interest is only ever waived when paying balances in full. 

Brie

I don't like to disagree with eskbanker but I think he's missed a crucial bit here. 

Yes the only way to avoid interest completely is to pay the entire balance.  BUT now that you have a statement and the purchase is attracting interest it falls into the arena of any payment you make will be applied against that purchase and any interest.  So if you now pay off the £3k plus the interest that is on the statement you can leave the 0% BT unpaid.  There will be a bit of trailing interest on the next statement, possibly on the one that follows but that will be very significantly less.  

If you pay the £3k+ that is more than your monthly minimum so you shouldn't need to pay that as well.  Sadly many people working for card companies are a bit baffled by things like BTs and frequently get the info wrong.  Or at least not completely right.  

Yes eskbanker is right in that it's not a good idea to use a card with a 0% BT to make purchases. 

The only one I know of where it does work is the M&S credit card.  But that's a bit of a pig as they also don't tell you the total of your purchases (with refunds or without?) so I've always had to check each month how much to pay.  In the end it's not worth the trouble.  

CliveOfIndia

bright_king7 said:

Is this normal operation? I thought that when you pay off part of a credit card balance, the highest interest-bearing line items are paid off first (in this case, it should be the "purchase" because the "balance transfer" has 0% interest),

You're right that any payments get prioritised to the highest-rate portion of the debt first.  However, unless you pay off the full statement balance (including both purchases and BT) then the accrued interest from the purchases becomes payable.

I think I'm right in saying that Barclaycard is one of the very few that separate out purchases and BTs - allowing you to, as you say, pay off the purchase amount plus the minimum towards the BT.  But pretty much all other mainstream cards require you to pay off the full balance in order to avoid interest.

born_again

Wait till statement arrives with the £3K transaction on. 
Pay the amount of transaction + min payment & a few £ extra. Should ensure you incur no interest.

Problem is when people make a payment before transaction is statemented. In which case the payments goes towards the last statement balance.

surreysaver

It might help if we knew which credit card it is, they can all do things slightly differently.
With my Barclaycard, I have a 0% balance transfer on it, but I can still spend within the minimum payment and I don't get charged interest (which is handy for the cashback, and keeps the 0% maxed out).

zagfles

1. Is this interest actually charged, or is it "estimated interest". If the latter, ignore, this is just nanny state mandated rubbish they have to quote based on you paying the min payment. They quote it even if you have a full statement DD, I've never paid this "estimated interest" ever. 

2. Read the terms, will probably be in the summary box on your statement. Paying in full invariably exempts you from paying interest, some cards (eg Nationwide, Barclaycard) extend this to paying in full excluding balance transfers at introductory rates. But if yours doesn't you'll only have to pay interest up to the point you pay the purchase balance off. Payments should be applied to the purchase balance PROVIDED it is statemented, that appears to be the case with you. 

zagfles

eskbanker said:

Yes, this is normal and is why it's not a good idea to mix non-0% purchases with 0% BTs - interest is only ever waived when paying balances in full. 

Depends on the card. See above. 

ManyWays

eskbanker said:

Yes, this is normal and is why it's not a good idea to mix non-0% purchases with 0% BTs - interest is only ever waived when paying balances in full. 

Santander seems to do it this way and it results in some very confusing credit card statements. Customer services are hopeless at explaining it to the point where they will usually credit you with the small amount of interest added to get you to go away!