Don’t get clobbered by multiple credit-card rates

If you typically maintain a credit-card balance, you might be paying more than one interest rate. You can have a multirate balance if, for example, you transfer $1,000 using a card’s 0 percent balance transfer offer, spend $1,000 on purchases subject to its standard interest rate, and then use the card to get a cash advance, which gets hit with the card’s highest rate. For example, a staff member’s Citibank card recently charged a standard interest rate of 15.24 percent but had a cash-advance rate of 22.99 percent.

When you make a payment, card issuers typically apply it to the lowest-rate balance, which in this case is the amount subject to 0 percent interest. You pay off that balance first, and the issuer charges you the higher interest rates on the rest of the money you owe, month after month.

Federal banking regulators recently proposed reforms that could reduce or eliminate this practice. And Congress was considering legislation that would prohibit this and other abusive credit-card practices. But until such reforms are enacted, you can avoid those extra fees by using different cards to maintain balances at different rates. For example, if you use a 0 percent interest promotion to transfer a balance to a card, don’t use the card for any other purpose. Charge your new purchases on a second card, then make your biggest payments on that card. And try to avoid taking cash advances, since there’s no way around their high interest rates.—Anthony Giorgianni

Comments

[lizette]

I had never thought of your suggestion to use the zero balance card exclusively for that type of offer. good idea. I've gotten caught in that exact scenario.