How Credit Card Payments Get Applied

If you are already carrying a large balance on your credit cards then just making the minimum monthly payments could take you a lifetime to be debt free.

Here’s why; flip over your credit card statement.  The government requires credit card companies to disclose certain details to the consumer; one of those details is how the bank will apply your payments.  My credit card statement tells me that they apply payments in this order:  1) to any interest; 2) to any fees; 3) to any Cash Advances; and 4) to any purchases.

So before your payment even makes a dent into your balance the bank takes care of paying off things like interest and fees.  My card is currently at 19.75% so that’s one of the reasons why credit card products are so profitable.

What that means for the big banks is if you have a $20,000 credit card balance, with a 19.75% rate and you make minimum payments at $350/m it will take you over 14 years to pay off that balance.  And that’s assuming you don’t have any new purchases, cash advances, make any late payments or get charged with any other penalties.

If you are finding there is more “month at the end of the money” and are stuck on the merry-go-round of credit card payments, you do have a choice.  Get off.

Perhaps a debt settlement plan can help you avoid pending bankruptcy and get you debt relief too.