May 24th, 2010 
Ryan Parker 
If you have a credit card, it is common knowledge that paying the balance off quickly is desirable and benefits your credit score. However, did you know that thanks to new legislation that was passed in February, paying more than your minimum can actually save you more money than before?
The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 has a provision that specifically states that any overpayment made on a credit card MUST be used on the balance with the highest APR*. Before this law was passed, a bank could go ahead and apply your extra payment to whatever APR tier they wanted; this would minimize the impact of dedicating more of your income to paying down your debt.
*If you want to learn more about APR, check out our Credit Education Center article on annual percentage rates.
When I say APR tier, I mean the fact that your average card has at least three main levels of interest rates: purchases, balance transfers and cash advances. Promotional APRs exist too, but not on every credit card (like an “introductory APR” or something similar.) Typically, your balance transfer APR tends to be the lowest, followed by purchases and then the usually sky-high cash advance APR.
How Over-payments Save Money
Now that we know how the tiers work, I’ll give you an example of the savings. Say you had a credit card with a $10,000 balance. The balance is equally split between purchases and cash advances. Your purchases APR is 14.6% and your cash advance APR is 24.3%.
If you pay $100 over your minimum, before the new law, you would only save $163.79 in interest. With the CARD act, your savings increases to $223.79. This effect is magnified depending on how much extra you can pay on top of your minimum balance.
The best part about this? Not only do you save money, but it also helps boost your credit score by more quickly reducing your balance to credit limit ratio. The bottom line is, if you can make over-payments without complicating your financial situation, definitely do it.
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Tags: Paying, Paying Minimum