Mixed Interest Rates on Credit Card Balance

[Anonymous]

Hi,

I'm trying to decide what's the best way to pay down two cards I have. Each has a balance of just under $10,000.  One has an interest rate of 14% and the other has a similar rate for about $2000 of the balance and about 5% for the remaining $8000 of the balance (that was a special rate for a balance transfer to that card). If I'm not mistaken, with the second card, they credit money you pay towards the lowest interest amount first and only when that's paid off do payments go towards the higher interest amount.

However, I thought I recently read somewhere that part of the new regulations coming in require credit card companies to start applying payments to the higher interest balance first and then the lower interest amount. Is this correct, or just wishful thinking on my part?!

Depending on what is correct, what would be the best way to start reducing the balance on the two cards? I have about $1000 a month available to pay them off but I'm just looking for advice on how to divide that out.

Thanks!  

[Anonymous]

You are partially correct. With the new credit card reform which goes into affect next year, the amount of your payment that exceeds the minimum payment must be applied to your highest interest rate balance. So for example:

Your minimum payment is $300.00 on your card with multiple interest rates. You make a payment of $500. $300 (the minimum payment) will be applied to your lowest APR balance, the remainder $200 will be applied to your highest interest rate balance.

Until this legislation takes affect next year, I would pay the minimum on your card with multiple interest rates, and pay the rest of your available cash to your card with only 1 rate. This way, when the new legislation takes affect, you can more affectively pay down the balance without throwing away your low APR balance.

[Anonymous]

Great. That's exactly what I need to know. Just one more question. Is this part of the legistration that's coming in in February?

Thanks again.

[Anonymous]

That is correct.