The Blue Card from American Express

I noticed something the other day on my American Express “Blue” Card statement.

A while back, I got a very low interest rate, and the rate was good for the life of the loan.  I had about $300-$400 on that card already, but went ahead with the transfer.  By January of 2007, the balance was just over $10,000.  Today, it is just over $6000, meaning that I’ve paid over $4,000 off the card in the past 20 months or so…

I looked at the individual balances on the two lines of credit, and nearly $700 is on the higher rate.  Not only has that amount not dropped, it has almost doubled!

I looked again, and saw what was happening.  Every statement, they assess interest charges.  The charges for the interest get applied to the line-item.  When I make a payment, however, I don’t pay the interest charges, I only pay down the lowest interest item.  So every month, my “great rate” credit card gets just a little worse off…

So definitely be on the lookout for those cards that advertise low interest rates, and be sure to see how they apply your payments.  Does the payment get applied to all loans equally, or does it go against the lowest interest?  Do you pay the interest off first, and then the rest is applied to principle, or does it hit your balance first?

These are important things to know, especially when you decide to transfer a balance to a card that already has a balance.