Does anyone know how to calculate interest rates? I have a credit card with a split interest rate ($6000 at 6% and 1000 at 20%). How do I know if I should put more money (than the minimum payment) on this one vs. one that has a straight interest (10% or less)? There has to be some formula - does anyone know it? Thanks in advance.
Unless you request differently, usually a CC company is going to take whatever payment you sent them and split the payment proportionately to your balances. So in this case, the majority of your payment is going to be going to your lower interest rate, which isn't the best situation. Are you able to make more than your minimum payment?? If so, I'd call your CC company and ask to specifically make some principle payments to that $1,000 at the higher rate.
You need to contact that credit card and speak with an account specialist and specifically ask when they receive your payment which amount is credited. Credit cards are different in the way they handle your payment and which balance is credited. You might be asking a question which needs no answer simply because your entire payment will go to which balance is their policy to credit first. A credit card might apply your payment to the oldest transactions first. A credit card might apply your payment to the lowest interest rate first.
The way I learned it (many moons ago) was that any payment goes toward the lowest interest rate - period. This is why the whole thing has my so confused - it's not apples to apples. Am I wrong?
It used to be that payments were indeed just applied to your lowest rate, because then the company is going to end up making more money with the balance staying the same on the higher interest rate. But these days, the cc companies are just wanting to get paid back, so I'm finding that a lot of my client's cc companies split the payments so something gets paid on both balances. THey may pay more on your higher balance, they may pay the most on your higher interest rate. You just need to call your credit card company and find out because like jumpin4joy said, they can all operate differently and do, though they tend to not care what transactions occurred when except for if there is a special offer during a certain time period. Either way, it is best to not mix interest rates on cards if you can help it. The best solution here is to be making extra principle payments on that 1,000 balance @ 20% because as long as you have that, when you make your credit card payment, essentially the rates of 20% and 6% become a blended rate of 13%. Maybe that is a better way of looking at it when you're deciding what to pay on this card vs. another one? Hope this helps.
A quick spot check of how your payments are being applied would be to take the past several months of statements and compare the balances for each item and how they decrease over time. But I advise you to call the credit card company and ask specifically how they handle your payment.
