You might not have heard the term 'order of payment' - but if you've got a credit card, it can make a big difference to how much interest you end up paying.
Here we explain what order of payment is, how it affects you and how paying attention to it could save you money in credit card interest in the long-run.
What is order of payment?
Order of payment refers to the way your credit card repayments are made. Lenders can decide in what order your different kinds of credit card borrowing are repaid - and many lenders have an order of payment which means that cheaper borrowing will have to be repaid before you can start to pay off more expensive debt.
What difference does order of payment make to me?
Order of payment can make a big difference to how much interest you have to pay on your credit card borrowing. If you have borrowed in more than one way on your credit card, for example if you transferred a balance to take advantage of a low rate APR or 0% balance transfer deal, and then also made purchases, or a cash withdrawal you will probably be paying different APRs on all these kinds of borrowing.
With many credit card providers, the order of payment means you will have to pay off the debt with the lowest APR first - meaning that the more expensive borrowing racks up more and more interest while you are waiting to be able to repay it.
However, if a credit card provider has a positive order of payment, you will be able to pay off your more expensive borrowing first - which could save you money in credit card interest.
How much could positive order of payment save me?
Nationwide's Gold credit card has a positive order of payment, and the provider calculates that if an average customer, making a balance transfer of £2,020 within a month of taking out their card, £307 of new purchases each month, two cash withdrawals of £84 in the first and seventh month and making monthly repayments of £359 would save £213 in interest in one year alone, if they were to switch to the card.
How can I find out the order of payment for my credit card?
New legislation means that from October 2008, all credit card providers have to tell customers the order of payment on all credit card statements, but it's still a good idea to check your credit card terms and conditions or contact your provider to find out the order of payment if you are in any doubt.
If you are looking for a new credit card, when you compare with uSwitch you can see the order of payment by clicking on the 'More info' link.
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