How are credit card payments applied when you have balances with two different interest rates?
The Credit CARD Act requires credit card issuers to apply any dollar amount in excess of the minimum payment to the balance with the highest interest rate. Let's say, for example, that you have a balance of $1,000. You have a $300 balance with a 10% interest rate and a $700 balance with a 16% interest rate. If you pay an extra $100 over your minimum payment, that $100 is applied to the $700 balance since it's the higher interest rate.
However, one loophole in the credit card legislation is that the minimum payment itself can be applied to the balance with the lower interest rate. So your minimum payment, in this case, can be applied to the $300 balance, which is the lower interest rate. Only the amount in excess of the minimum payment has to be applied to the balance with the higher interest rate.