Credit Card Questions & Answers

Related FAQ's & Guides Q. What is the allocation of payments clause? A. The allocation of payments is a listed clause in the terms and conditions of every credit card. This clause basically states the order in which payments you make to your account will be applied. Q. Why are there so few 0% balance transfer and purchase credit cards? A. Equal length 0% balance transfer and purchase credit card deals - that are suitable to both transfer to and spend on have become the rarity - and the main reason simply comes down to credit card company profiteering. Q. Why are only some 0% balance transfer credit cards suitable for new purchases? A. It may seem an obvious assumption to make - it's a credit card, why wouldn't it be suitable for using to pay for new purchases? However, the main potential rate-trap - the one used to lure unsuspecting customers into paying for "the champagne at the shareholders meeting" - of 0% balance transfer credit cards is the one thing you’re most likely to do - spending Q. Why should I avoid cash transactions on a 0% balance transfer credit card? A. When it comes to making cash transactions there are a number of reasons why you should avoid using your 0% balance transfer credit card. What they forgot to tell you about 0% promotions Credit cards offering 0% interest rates on balance transfers and purchases may seem like a great idea, and if you're careful to pick the right card, and use it wisely, the benefits are huge.

Generally speaking, spending on any credit card you've taken out to help manage and repay an existing balance is effectively adding debt to debt and isn't the best move when trying to become debt free.

What makes spending on a credit card that you’re using for a promotional balance transfer offer even more of a bad idea is the allocation of payments clause written in the terms and conditions.

Allocation of payments
It’s this clause that states the order in which payments you make to your account will be applied. In this case, it will usually see payments go towards promotional balances first and then to standard rate balances and lastly to cash transactions.

This means that any new purchases made with the credit card will effectively become ‘trapped’ behind the promotional balance transfer accruing interest at the standard rate. These standard rate purchases will remain on your account until the cheaper rate balance transfer is repaid in full first.

Why the credit card companies allocate your payments
The allocation of payments clause has always been a listed term and condition of credit cards. However, only in recent years has this clause become more widely publicised.

With the introduction of "0%" deals, credit card companies found this allocation of payments clause a rather handy method of clawing some of their profits back.

Any unsuspecting card user who takes out a 0% balance transfer offer and then spends on the card, or worse withdraws cash, has to start paying the credit card company interest charges – and paying them until they’ve first manage to repay all of their balance transfer.

The credit card companies took this profit-making method up a notch by introducing 0% deals on purchases to lure cardholders into spending, but these purchase deals only remain at 0% for a few months, leaving on average 9 months to tally up the revenue from interest.

Spending required balance transfer deals
Spending requirements on promotional balance transfer deals are just one more way of attempting to claw back revenue from 0% offers.

However, unlike the ‘0% on purchases for 3 months’ that can be avoided by simply refraining from the temptation to spend – a spending requirement actually forces you to spend on the card to get the full length of the 0% balance transfer offer.

If you don't spend any money on these cards you’re likely to see your advertised '0% for 12 months' drop rather dramatically to barely cover a season.

And if you do spend on these cards, while you may get 0% on your balance transfer for the next year, all the while the purchase you made will be earning your bank interest and you’ll have to wait till your previous card balance is repaid before you’ll be able to remove the purchase from your new account.

The extra twist of credit card company immorals here is that often you’ll find these offers only give you 0% for 12 months – which is the market average, so you aren’t even getting an extra long deal for your required spend.

Take 5 minutes and compare 0% balance transfer credit cards to find cards offering 0% for 12 months and longer without any spending requirements.

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0% balance transfer credit card questions & answers
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