How interest is posted

[mrtoledo]

What is the name of your state?What is the name of your state? MI

I have a Credit Card account with a major credit card company. A while back I received an offer to transfer balances from cards with higher rates to this card, with a fixed 3.9% rate until the balance is paid in full.

Part of the terms and conditions state that

“Payments and credits may be applied first to promotional balances before being applied to balances with higher APR’s. This will result in the lower APR balances being paid before the higher APR balances”.

Basically I understood that, but besides this they are doing something else that seems strange. Lets say I send them a check for $250.00 on the account. They will apply the full $250.00 to the balance with the lowest interest rate. Then they post all of the interest charges to the account as a new charge at the highest rate.

The card has two different balances listed, one for the promotional rate and one for the general rate. I would have expected the normal rate to be unchanged and the money paid less interest charges to come off of the promotional rate. The card isn’t being used for new charges, and the balance continues to drop every month, but the balance for the general rate continues to rise every month in the amount of the interest on the account.

Basically my question is if it would be considered normal for the company to post the interest as a new charge, or should the interest be taken off of your payment amount?

 

[Veronica1228]

What is the name of your state?What is the name of your state? MI

I have a Credit Card account with a major credit card company. A while back I received an offer to transfer balances from cards with higher rates to this card, with a fixed 3.9% rate until the balance is paid in full.

Part of the terms and conditions state that



Basically I understood that, but besides this they are doing something else that seems strange. Lets say I send them a check for $250.00 on the account. They will apply the full $250.00 to the balance with the lowest interest rate. Then they post all of the interest charges to the account as a new charge at the highest rate.

The card has two different balances listed, one for the promotional rate and one for the general rate. I would have expected the normal rate to be unchanged and the money paid less interest charges to come off of the promotional rate. The card isn’t being used for new charges, and the balance continues to drop every month, but the balance for the general rate continues to rise every month in the amount of the interest on the account.

Basically my question is if it would be considered normal for the company to post the interest as a new charge, or should the interest be taken off of your payment amount?

Sounds to me like the "general rate" portion of the card is formulated using compound interest rather than simple interest. What this means is that your balance is going to continue to grow astronomically because they are adding the interest to the balance and then charging you interest on top of interest.

This is unusual for credit cards, so read your agreement and disclosures carefully. You would be well advised to pay off this card immediately and close it. When it comes to credit, you NEVER want a compound interest situation. You will dig yourself a hole that you can't get out of.