Discovered: How Credit Card Companies Allocate Payments
Credit cards are, after a certain point, the enemies to peace of mind because you may be making your payments regularly but your credit card debts may be obstinately refusing to come down but rather may be increasing instead. You may be in a quandary because this seemingly defies normal mathematical laws. To make this clear to yourself why it is so and if you really want to be free of this plight, your first order of business is to be aware of how credit card companies treat your repayments. The good news is, you have a right to this information and credit card companies are mandated to disclose the same to you.
In their disclosure statements, there’s what they call the “payment allocation provision” which actually delineates how credit card companies are squeezing every ounce of earnings from your debts. What it just tells you is that they can apply your repayments to clearing any portion of your debts as they choose. In reality, with your repayments, they wipe out the low interest debts and keep the higher interest charges untouched. The ultimate intention is to earn maximum interests out of latter, thus keeping our debts at the same plateau although they are supposed to decrease with each payment.
You should immediately attend to remedy this or otherwise, you’ll be in a debt trap fast. You can work it out with your credit card provider to divert your payments to the higher-rated transactions first and only after these are eliminated should they direct payments to the lower-rated transactions. This will naturally reflect as tangible decreases on your debts. Often, this choice is unique to student and car loans.
Another step to remedy this situation is to shift all your high interest credit card dues to a zero interest credit card to realize savings on interest payments. Then again, you shouldn’t allow fresh purchases using the zero interest credit card anymore so that you won’t return to your old financially-precarious situation.
Nothing can beat the suggestion of repaying your credit card debts completely within a short period so that you can have a new lease on a worry-free life.
