Balance Transfer Banditry

[Anonymous]

If you're engaging in BTB, or Balance Transfer Banditry, here's a little helpful advice.

If you're BTing onto a really low or no APR CC, you might consider loading it up with whatever balance you want to put on it, as appropriate to your situation given util and scoring considerations, and then sock drawer it at least until the intro rate expires. [Be sure to plan early on how you're going to handle the balance--PIF when the intro rate expires, pay it off in payments during the intro rate period, shift it onto another low or no APR CC, etc.]

With some CCs, payments you make get applied to the highest APR balances first. Others, not so much. Let me explain further with an example.

Assume you have a CC with these APRs:
0% APR for BTs
14.9% APR for purchases
19.8% APR for cash advances

You have a $10K CL, $4K on the card from BTs (0%), $327 from purchases (14.9%), $120 from cash advances.

The bill arrives, and you owe $4,447 although your minimum due is considerably less. However, you don't wanna get socked with a 14.9 or 19.8 APR, so you PIF the purchases and cash advance balances, or $447. Seems simple enough.

Next month's statement arrives, and you were assessed finance charges. You're puzzled as to why. It's because the bank applied your $447 payment to your BT balance which has a 0% APR on it. But your purchase and cash advance balances remain and continue to accrue interest.

You could call and talk with customer service, and they generally will tell you very honestly, openly and directly the order in which payments are applied. But, policies do get upgraded. What holds last month, might not hold this month.

If you sock drawer the card with a low or no APR balance on it, and that's the only balance on it, then you don't run into these sorta things. The balance rides along, you pay any required minimums on time (to ensure you keep that low or no APR balance), and check your statement or call customer service so you know when the intro rate expires.

[Anonymous]

I agree. I had an emergency last weekend and had to take a cash advance on my AMEX card. I also have several balance transfers I want to do, however I'm holding off until my PIF posts for the advance I did as to avoid any ambiguity.

[marty56]

It is common practice for CCCs to apply a payment to the balance that has the lowest interest rates when you have balances that have different interest rates.  This could happen for 0% on purchases or any other reason they like.

When I did my 0% BT with National City visa, the person explianed that to me before I made the transfer.  That is one of the reasons I like national City.

[Anonymous]

There is a variation in this type of banditry that actually involves applying payments to the higher APR first, when it's in the CCC's best interest to do so.

Example:  You make a promo purchase at 0% for a set period.  According to the terms of the promo, the promo balance must be PIF before the end of the promo period, or interest will begin to accrue and will be applied retroactively to the date of the purchase.  These are very common terms for 0% deals on store cards, for example.

So if you make another purchase on the card before the promo balance is PIF, the CCC applies your payments to the new purchase first, even though it's at a higher rate.  They do this so that there will be a greater chance the promo purchase won't be PIF by the end of the promo period and they'll be able to collect all that $$$$ retroactively, as if the 0% period never even happened.

Message Edited by cheddar on 02-14-2008 09:56 AM