topic Re: How do Balance Transfer Payments Work? in Credit Cards

How do Balance Transfer Payments Work?

Repairman — Fri, 25 Dec 2020 06:43:29 GMT

It's been a very long time since I did a balance transfer. Can someone update me? If I do a 0% APR balance transfer to a card, but also post regular charges to the same card each month at a higher APR, how are payments applied? Is it that the minimum amount due will go toward the balance transfer and the rest of the payment made go toward the new charges? And if that's the case, how about payments made before the statement cuts and no minimum amount is due yet?

Re: How do Balance Transfer Payments Work?

NRB525 — Fri, 25 Dec 2020 08:55:25 GMT

Yes, your basic allocation is correct.
It gets nuanced as "lowest APR set gets the minimum payment, then higher payment amounts start getting applied to the highest APR, then stepping to lower APR, within the same monthly payment cycle."

If you have a BT balance and add regular charges, then each month as soon as the statement prints, you can pay the minimum payment off that statement. This applies to the BT balance, but it sets you up to then be able to pay new charges after they have posted, since you are now paying more than the minimum payment. You basically set your payments to minimize the time new charges are incurring daily interest charges.

It depends on the bank how close to zero interest you can get. Capital One is likely pretty easy, but others like US Bank will charge $1.50 minimum interest to the periods. I've had cases where I had to call US Bank to get the minimum interest stopped, after I had stopped using the card for new charges, because the minimum interest kept cycling itself, even after I tried paying it immediately after statement cut.

If you have a card that earns good rewards, this can make sense, to have the BT and continue to charge. If no rewards, however, this is where the suggestion is made to use another card with interest grace period, to make it easier to avoid the interest charges, to keep the BT pristine.

Re: How do Balance Transfer Payments Work?

Repairman — Fri, 25 Dec 2020 16:56:50 GMT

@NRB525 wrote:
Yes, your basic allocation is correct.
It gets nuanced as "lowest APR set gets the minimum payment, then higher payment amounts start getting applied to the highest APR, then stepping to lower APR, within the same monthly payment cycle."

If you have a BT balance and add regular charges, then each month as soon as the statement prints, you can pay the minimum payment off that statement. This applies to the BT balance, but it sets you up to then be able to pay new charges after they have posted, since you are now paying more than the minimum payment. You basically set your payments to minimize the time new charges are incurring daily interest charges.

It depends on the bank how close to zero interest you can get. Capital One is likely pretty easy, but others like US Bank will charge $1.50 minimum interest to the periods. I've had cases where I had to call US Bank to get the minimum interest stopped, after I had stopped using the card for new charges, because the minimum interest kept cycling itself, even after I tried paying it immediately after statement cut.

If you have a card that earns good rewards, this can make sense, to have the BT and continue to charge. If no rewards, however, this is where the suggestion is made to use another card with interest grace period, to make it easier to avoid the interest charges, to keep the BT pristine.

If I make payments before the statement cuts can I pay down the new charges? In other words, say I have a $3000 bt and charge $1000 on top of that in a month. Before the statement cuts, can I pay $1000 and it will be used only toward the new charges? And then after the statement cuts I can pay another $500 that will go toward the bt?

Re: How do Balance Transfer Payments Work?

NRB525 — Fri, 25 Dec 2020 18:28:38 GMT

Well, you can't pay only $1,000 and have all that applied only to new charges. You need to also pay the $35 or $50 minimum payment amount.

Yes you need to pay that $1,000 prior to statement cut, but each day you leave new charges open, they will contribute Daily Interest charges. So if you wait to pay the $1,000 the day before statement, you'll see the full month of interest on that statement.

Re: How do Balance Transfer Payments Work?

Repairman — Fri, 25 Dec 2020 19:40:44 GMT

@NRB525 wrote:
Well, you can't pay only $1,000 and have all that applied only to new charges. You need to also pay the $35 or $50 minimum payment amount.

Yes you need to pay that $1,000 prior to statement cut, but each day you leave new charges open, they will contribute Daily Interest charges. So if you wait to pay the $1,000 the day before statement, you'll see the full month of interest on that statement.

I understand that, but what I'm asking is regarding payment when there is no minimum due. For example, say there's only a $3000 bt on the card, the statement cuts, and there's a $35 minimum due. I pay that $35. Then 2 weeks later I charge $1000 to the card. The minimum due is still at 0 because I paid it just 2 weeks prior and another statement hasn't cut yet. At that moment I immediately pay another $1000 to the card (before the next statement cuts and another minimum is due). Does that $1000 payment go completely to the new charges I made? Or will it still split with the balance transfer balance?

Re: How do Balance Transfer Payments Work?

NRB525 — Sat, 26 Dec 2020 07:46:18 GMT

The minimum payment is one amount for the entire "payment due" cycle. It is not for each payment.

In your example paying the $35 right after statement cut takes care of the minimum payment for the entire period. If you charge $15 two weeks later, then pay $15 as soon as that moves from Pending Charge to Posted Charge, the entire $15 payment would be applied to this new charge. I would tend to pay $16 at that moment, just to have a better chance of canceling out the daily interest charge, but that may just be superstitious on my part. Charging $1,000 and paying $1,000, after you already paid the $35, that scenario applies the entire $1,000 payment to the new charges.

We are describing the same thing, I used the $15 amount to try to make the math more obvious

Re: How do Balance Transfer Payments Work?

Repairman — Sat, 26 Dec 2020 09:51:24 GMT

@NRB525 wrote:
The minimum payment is one amount for the entire "payment due" cycle. It is not for each payment.

In your example paying the $35 right after statement cut takes care of the minimum payment for the entire period. If you charge $15 two weeks later, then pay $15 as soon as that moves from Pending Charge to Posted Charge, the entire $15 payment would be applied to this new charge. I would tend to pay $16 at that moment, just to have a better chance of canceling out the daily interest charge, but that may just be superstitious on my part. Charging $1,000 and paying $1,000, after you already paid the $35, that scenario applies the entire $1,000 payment to the new charges.

We are describing the same thing, I used the $15 amount to try to make the math more obvious

Thanks. I'm trying to decide whether I will be doing the scenario I described. I just got a new cc with a killer sign up bonus, the reason I got it, so I obviously will put all my spend on it to get the bonus, but it also offers a great 0% APR for balance transfers, which would be nice to use, but as you stated in another reply that could get a little messy, so I'm not exactly sure yet what I'm going to do.

Re: How do Balance Transfer Payments Work?

tcbofade — Sat, 26 Dec 2020 10:53:22 GMT

In the past, I've used the card for purchases, hit the SUB requirement, paid it to zero, and THEN did a balance transfer if that helps you any.

It shortens your windown to complete both the SUB and the BT, but it was very, very doable for me.

Good luck!

Re: How do Balance Transfer Payments Work?

Repairman — Sat, 26 Dec 2020 11:11:35 GMT

@tcbofade wrote:
In the past, I've used the card for purchases, hit the SUB requirement, paid it to zero, and THEN did a balance transfer if that helps you any.

It shortens your windown to complete both the SUB and the BT, but it was very, very doable for me.

Good luck!

Thanks. That's what I would LOVE to be able to do, but unfortunately, that doesn't work for my scenario. I have 12 months to put $6000 of spend on the card for the SUB, but I have to do the BT within the 1st 45 days of opening the card.

Re: How do Balance Transfer Payments Work?

NRB525 — Sat, 26 Dec 2020 15:10:58 GMT

@Repairman wrote:

I have 12 months to put $6000 of spend on the card for the SUB, but I have to do the BT within the 1st 45 days of opening the card.

Which new card do you have?

Re: How do Balance Transfer Payments Work?

HeavenOhio — Sat, 26 Dec 2020 16:24:22 GMT

How big is the sign-up bonus?

This is a great example of why the default advice is not to charge on a card with a 0% balance transfer unless it also offers 0% on purchases. A couple of banks, possibly Capital One and Barclays, offer tools to help people manage payments situations like this. But for the most part, it's really confusing.

In this case, the dribs and drabs of interest and the confusing payment situation seem to be offset by the signup bonus and the interest saved by transfering the balance.

Re: How do Balance Transfer Payments Work?

Repairman — Sat, 26 Dec 2020 17:06:45 GMT

@NRB525 wrote:
@Repairman wrote:

I have 12 months to put $6000 of spend on the card for the SUB, but I have to do the BT within the 1st 45 days of opening the card.
Which new card do you have?

The JetBlue Plus card from Barclays.

Re: How do Balance Transfer Payments Work?

Remedios — Sat, 26 Dec 2020 17:07:38 GMT

@HeavenOhio I'm assuming this is the card OP is talking about.

Does Barclay allow preserving grace period for new purchases in the presence of BT?

Re: How do Balance Transfer Payments Work?

Repairman — Sat, 26 Dec 2020 19:52:54 GMT

@HeavenOhio wrote:
How big is the sign-up bonus?

This is a great example of why the default advice is not to charge on a card with a 0% balance transfer unless it also offers 0% on purchases. A couple of banks, possibly Capital One and Barclays, offer tools to help people manage payments situations like this. But for the most part, it's really confusing.

In this case, the dribs and drabs of interest and the confusing payment situation seem to be offset by the signup bonus and the interest saved by transfering the balance.

100,000 pts. It is a Barclays issued card...so does that mean, they will give me tools to make this situation easier? How so?

Re: How do Balance Transfer Payments Work?

HeavenOhio — Sat, 26 Dec 2020 22:01:01 GMT

I can't find anything from Barclays, but I recall that their mostly defunct Apple Rewards card had a way to avoid interest on purchases while carrying special financing. I don't know if it was specific to that card or if it's something that's available across more Barclays cards.

As a comparison, Capital One includes an Interest Saver Payment amount on their statements. Pay that amount, and you'll cover your purchases and your balance transfer minimum.

Re: How do Balance Transfer Payments Work?

NRB525 — Mon, 28 Dec 2020 20:27:53 GMT

@Repairman wrote:
@NRB525 wrote:
@Repairman wrote:

I have 12 months to put $6000 of spend on the card for the SUB, but I have to do the BT within the 1st 45 days of opening the card.
Which new card do you have?
The JetBlue Plus card from Barclays.

Ok, so it is not clearly stated on the main pages of the promo, but similar to other 0% APR BT cards, during the first 12 months, new purchases also are 0% APR as long as they are paid in full by the payment due date.

Having a rewards card, with a 90 day spend required for a SUB, along with a BT offer that has to be used within 45 days would not make any sense if it did not also come with some form of 0% on purchases.

https://www.barclaycardus.com/applycontent/TnCs.jsp?tc43857

Re: How do Balance Transfer Payments Work?

FalconSteve — Tue, 29 Dec 2020 02:25:27 GMT

@Repairman wrote:
@NRB525 wrote:
Well, you can't pay only $1,000 and have all that applied only to new charges. You need to also pay the $35 or $50 minimum payment amount.

Yes you need to pay that $1,000 prior to statement cut, but each day you leave new charges open, they will contribute Daily Interest charges. So if you wait to pay the $1,000 the day before statement, you'll see the full month of interest on that statement.
I understand that, but what I'm asking is regarding payment when there is no minimum due. For example, say there's only a $3000 bt on the card, the statement cuts, and there's a $35 minimum due. I pay that $35. Then 2 weeks later I charge $1000 to the card. The minimum due is still at 0 because I paid it just 2 weeks prior and another statement hasn't cut yet. At that moment I immediately pay another $1000 to the card (before the next statement cuts and another minimum is due). Does that $1000 payment go completely to the new charges I made? Or will it still split with the balance transfer balance?

Usually that payment will be credited to the last statement and the balance transfer balance.

Re: How do Balance Transfer Payments Work?

NRB525 — Tue, 29 Dec 2020 09:00:24 GMT

@FalconSteve wrote:
@Repairman wrote:
@NRB525 wrote:
Well, you can't pay only $1,000 and have all that applied only to new charges. You need to also pay the $35 or $50 minimum payment amount.

Yes you need to pay that $1,000 prior to statement cut, but each day you leave new charges open, they will contribute Daily Interest charges. So if you wait to pay the $1,000 the day before statement, you'll see the full month of interest on that statement.
I understand that, but what I'm asking is regarding payment when there is no minimum due. For example, say there's only a $3000 bt on the card, the statement cuts, and there's a $35 minimum due. I pay that $35. Then 2 weeks later I charge $1000 to the card. The minimum due is still at 0 because I paid it just 2 weeks prior and another statement hasn't cut yet. At that moment I immediately pay another $1000 to the card (before the next statement cuts and another minimum is due). Does that $1000 payment go completely to the new charges I made? Or will it still split with the balance transfer balance?
Usually that payment will be credited to the last statement and the balance transfer balance.

No, it won't. Please note the interest rate makes the distinction about what gets applied when.

Minimum payment to lowest APR first.

Anything over the minimum payment applies to highest APR next, and then steps down through potentially several tranches of APR rates before applying to the BT low rate again.

Re: How do Balance Transfer Payments Work?

FalconSteve — Tue, 29 Dec 2020 15:35:49 GMT

@NRB525 wrote:
No, it won't. Please note the interest rate makes the distinction about what gets applied when.

Minimum payment to lowest APR first.

Anything over the minimum payment applies to highest APR next, and then steps down through potentially several tranches of APR rates before applying to the BT low rate again.

If January has $10,000 0% Balance Transfer on statement and $500 in charges and a $50 min payment, a $550 payment would be needed to pay off the charges.

HOWEVER, if you made an additional $500 in charges and $500 in payments before the statement generates, that $500 would be applied to the balance transfer under the terms of the CARD act. If you waited until the February statement generated to make the extra payment, then it would be applied to purchases.

Re: How do Balance Transfer Payments Work?

GrandBaker — Tue, 29 Dec 2020 17:19:41 GMT

Lot of solid replies so won't repeat. Yes, regulations have gotten favorable towards the customer in the past decade however there is still room for lenders to tweak a couple things which could lead to confusion or misunderstanding and costly mistakes. Considering there are so many good cards for specific usage my recommendation would be to keep a BT card separate from a regular charges (charge or credit) card.