Personal Finance

accidental regular purchase on BT card

  • Last Updated:
  • Jan 27th, 2017 7:25 pm
[OP]
Newbie
Mar 31, 2010
38 posts

accidental regular purchase on BT card

Hi All,

Received a balance transfer offer on my CIBC card at 0% interest for 10 months and 1% fee . Followed the advice of others and cleared all of the balances before requesting a BT. However, I logged in today and noticed that there was a purchase (It is a pre-authorized charge) from my phone company. It is not big. I went in and changed the card details so it doesn't happen again, but really wondering what I should be doing to avoid any interest.

Example:
BT amount: 10,000
Phone charge: 30

Already have pre-authorized minimum payment due set up from my chequings account but wondering what I need to do to avoid any interest. If I made a payment today for $30, almost all of it would be applied against the BT amount. How do I somehow apply it against the phone charge.
8 replies
Sr. Member
User avatar
Mar 9, 2012
661 posts
254 upvotes
You can't force a payment against the purchases instead of a split between the purchase & balance transfers. The only way to pay off the purchase will be to pay off the full balance (purchase and balance transfer).

About how it will affect you (I will pretend your purchase interest is 19.99% in this example): $30 x 0.1999 = 5.997 (interest paid on a full year) / 365 (to find out daily interest) = 0.016430 x 31 (to find out how much every month you will pay) = 0.5093 Every month, you will pay about 50 cents in interest from that mistake. Now you decide how big of a deal $6 of interest in a year is to you.
[OP]
Newbie
Mar 31, 2010
38 posts
$6 for the year really? even with the compounding of interest etc. Sorry, I am not very sharp financially.
Member
Oct 3, 2013
369 posts
330 upvotes
geniuspaki wrote:
Jan 26th, 2017 11:27 pm
$6 for the year really? even with the compounding of interest etc. Sorry, I am not very sharp financially.
For an amount this small, compounding interest is negligible. The calculation is simply 19.99% * $30, which works out to roughly $6/year or 50 cents/month (unless you have a higher or lower rate, of course).

Not worth worrying over; you're already way ahead with the 0% balance transfer. Just imagine it being 0.06% interest on your $10000.
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Aug 8, 2012
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skunkyjosh wrote:
Jan 26th, 2017 11:24 pm
You can't force a payment against the purchases instead of a split between the purchase & balance transfers. The only way to pay off the purchase will be to pay off the full balance (purchase and balance transfer).

About how it will affect you (I will pretend your purchase interest is 19.99% in this example): $30 x 0.1999 = 5.997 (interest paid on a full year) / 365 (to find out daily interest) = 0.016430 x 31 (to find out how much every month you will pay) = 0.5093 Every month, you will pay about 50 cents in interest from that mistake. Now you decide how big of a deal $6 of interest in a year is to you.
Bolded part not quite right. You CAN force a payment towards higher interest balances but it depends on which bank, and you have to pay the min. payment PLUS an extra amount to force that extra payment onto the higher interest balance (and ONLY if that bank follows that method). See more below...
geniuspaki wrote:
Jan 26th, 2017 11:27 pm
$6 for the year really? even with the compounding of interest etc. Sorry, I am not very sharp financially.
It depends on how the bank applies payments. Beyond the min. payment the bank is allowed to choose to apply the balance to the higher-interest balance, OR proportionally to the entire balance.

OP, try making the min. payment + $30 more, and see what happens.

$30 x 20% / 12 = $0.50.

If you see $0.50 interest, call up CIBC and show them how you paid min. + $30 and ask how they've applied your payments ... if they say they do it proportionally then you are hosed and will continue to pay $0.50 interest per month for the rest of the year. Maybe you can get a credit for that first $0.50 explaining how you didn't understand and you paid the $30 off to avoid interest.

Report back.


See reference at Financial Consumer Agency of Canada here:
https://www.canada.ca/en/financial-cons ... .html#toc3

"How payments are applied to your balance

If you don’t pay your entire credit card balance by the due date, you’ll pay interest.

Different interest rates may apply to different types of credit card transactions. For example, cash advances often have a higher interest rate than purchases. This means different interest rates will apply to your balance depending on how you use your credit card.

Typically, your minimum payment will apply it to the portion of your balance with the lowest interest rate. Any amount you pay over the minimum payment applies in one the following two ways:

- to the portion of the balance with the highest interest rate
- proportionally to the entire balance


A credit card issuer that is a federally regulated financial institution can decide how they will apply your minimum payment to your balance.

Check your credit card agreement or ask your credit card issuer how they apply a payment to your balance.
"
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Sr. Member
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Mar 9, 2012
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ace604 wrote:
Jan 27th, 2017 12:28 am
Bolded part not quite right. You CAN force a payment towards higher interest balances but it depends on which bank, and you have to pay the min. payment PLUS an extra amount to force that extra payment onto the higher interest balance (and ONLY if that bank follows that method). See more below...
I've never seen a bank applying all payments to the highest interest, it's always been some kind of split % with the institutions I've been dealing with. Please share your findings if you know a bank that does it the other way: highest interest first.
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Aug 8, 2012
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skunkyjosh wrote:
Jan 27th, 2017 12:58 am
I've never seen a bank applying all payments to the highest interest, it's always been some kind of split % with the institutions I've been dealing with. Please share your findings if you know a bank that does it the other way: highest interest first.
I've never paid interest nor intend to so I won't have any findings to share :)
POLL: How frequent is your RRSP-matching?
Plastiq: Pay any bill with credit card for 0-2.5% fee (help meet min spending and keep old cards active!)
Rewards program transfer times (e.g. SPG->Aeroplan, Marriott->SPG, Amex MR->SPG...)
Sr. Member
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Mar 9, 2012
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ace604 wrote:
Jan 27th, 2017 1:06 am
I've never paid interest nor intend to so I won't have any findings to share :)
Same but I always try to avoid financial institutions that have bad practices. IE: inactive fees (BMO, MBNA) or 1965 card functionalities (Chase/JP Morgan = might be running under Scotia now).
I try to favorise the ones that have good practice and encourage them. I was hoping you were going to suggest me a "nice bank".... never mind they'll all crooks in their own ways.
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Aug 4, 2003
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skunkyjosh wrote:
Jan 27th, 2017 12:58 am
I've never seen a bank applying all payments to the highest interest, it's always been some kind of split % with the institutions I've been dealing with. Please share your findings if you know a bank that does it the other way: highest interest first.
ace604 wrote:
Jan 27th, 2017 1:06 am
I've never paid interest nor intend to so I won't have any findings to share :)
No personal experience because I too am very meticulous when it comes to these things but I remember reading materials from MBNA, prior to/around being bought out by TD, where they did change their payment allocation rules for a short period of time and allocated payments starting with the highest interest first. It was very short lived though.
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