Revealed: How Credit Card Companies Allocate Payments
Friday, January 15th, 2010You may be cursing yourself why you got into the habit of using credit cards for your purchases because these debts, instead of diminishing whenever you make payments, seem to be increasing. You may be at a loss to understand why this is happening but truth lies in how these companies adjust your payments. You’ll be mistaken if you think that the payments you make are adjusted towards the higher-rated debts first. But you must remember that these credit card companies will always decide in favor of bigger earnings and margins.
You should not hesitate to ask these companies how your credit card debts never seem to diminish in spite of the fact that you are making regular monthly payments. You should also ask them how your payments are adjusted. The point you should remember is that they are legally bound to provide you with the clarifications. Just the details about how your payments are adjusted are enough for you.
The terms that govern how they allot payments is covered in their “payment allocation provision”. This defines how credit card companies apply your payments, which is pretty much any which way they can earn bigger.
To earn very good profits, what these companies do is to adjust your payments towards low interest debts so that they can retain your high interest debts so that you continue to pay longer. This is the answer to your question of how your credit card debts increase instead of getting reduced even as you keep making regular payments.
Equipped with the knowledge of this fact, you can give instructions to the credit card company to stop adjusting your payments against low interest debts and do it against the high interest debts. They should be asked to give priority of adjustments commencing from the high interest debts and continue down in the descending order of the interest rates. Legally, you’re allowed to negotiate this with the credit card companies; however, this almost always applies to student and car loans only.
Another very useful step is to transfer all your high interest credit card debts to zero interest credit card. By taking this step, you can save a lot of interest which you would have unwillingly paid. Another caution you should take is to not make any fresh purchases with your zero interest credit card because this will again land you in trouble.
But if you want to have the best solution, you should liquidate all your credit card debts as quickly as possible so that you can rest and concentrate on taking care of yourself more.