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Changes to the allocation of credit card repayments

How the 2012 credit card reforms have changed the way pay off our credit card bill.

Before 1 July 2012, banks used to allocate credit card repayments to pay off the most recent transactions in the statement. However, the government reforms that were introduced from 1 July 2012 have changed the way our repayments have been allocated ever since. Rather than being attributed to the most recent transaction, our credit card bills now go to paying off the debt that is collecting the highest interest.

Different types of transactions collect varying interest rates. So, while your everyday purchases would usually collect the purchase rate, cash advances (such as ATM withdrawals or gambling transactions) will collect the cash advance rate. Plus, some cards also come with 0% on balance transfers or purchases for a promotional period. So, the transaction that is collecting the highest interest will receive the repayments before transactions with lower rates. For example, cash advances typically collect higher interest rates than purchases, so your repayments are likely to go towards any cash advances before purchases.

How are my credit card repayments allocated?

Let's say you have a credit card that has a 0% promotion on purchases for 12 months (which reverts to a standard rate of 19.84%) and a cash advance rate of 21.29% p.a. You've used the card to make $1,000 worth of purchases but also used the card to make an ATM withdrawal of $250 when you were low on cash.

Each month you're required to pay a minimum repayment of 2% of your total balance, which would be $25 if your balance is $1,250. However, this $25 would automatically go towards your cash advance as it's collecting the highest interest rate. Even after the 0% promotion ends, your repayments will still automatically go to any cash advances first as it's the cash advance rate is higher than the standard purchase rate.

If you're taking advantage of an interest-free promotion, it's important to remember how your repayments are allocated and you may want to pay more than the minimum to ensure you can clear the entire debt before the standard interest rate applies.

By making it compulsory for banks to contribute your credit card repayments to your debt that is collecting the highest interest, the reform aimed to help cardholders avoid collecting excessive interest and falling into debt. If you're not paying your balance in full each month, it's important to understand how your transactions are collecting interest at different rates and how much you need to repay to minimise your interest costs. You can use our credit card repayments guide for more information.

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6 Responses

  1. Default Gravatar
    BillNovember 2, 2018

    After advising ANZ of the 2012 changes to the way payments are credited to my account, with regards to highest interest first, they responded to me that they are able to apply the payments in the manner that suits them. So even after reducing my credit card debt by $7000 since February this year I find that my cash advance interest is still rising even though I stopped making transactions on it. How is this possible and are they providing me with the correct information?

    • Avatarfinder Customer Care
      JeniNovember 12, 2018Staff

      Hi Bill,

      Thank you for getting in touch with finder.

      Although this 2012 credit card reform is paying off the debt that is collecting the highest interest i.e. cash advance, it’s also important to remember when you made the payment and when had your cash-like transactions.

      I suggest that you have your detailed credit card statement with you when you speak to ANZ on the phone or in the nearest local branch to clarify how your cash advance interest accumulated when in fact you’ve made payments to lessen them.

      As a friendly reminder, while we do not represent any company we feature on our pages, we can offer you general advice.

      I hope this helps.

      Please feel free to reach out to us if you have any other enquiries.

      Thank you and have a wonderful day!


  2. Default Gravatar
    SezzaNovember 23, 2017

    So I have a credit card that I used for petrol etc and pay the statement off every month to avoid interest.
    I was offered a balance transfer of 0% for 18months on the same credit card. I took this up and continued to use the card like I always have.
    I made payments like I normally do and now this credit card statement I’ve been charged interest.
    I thought all repayments were meant to go off the higher interest portion off the amount owing but the payments I was making went off the balance transfer amount instead plus the regular purchase transactions.
    Is this meant to happen? Am I mixed up on all this? Lol
    Can you please clarify?

    • Avatarfinder Customer Care
      JoanneNovember 24, 2017Staff

      Hi Sezza,

      Thanks for reaching out.

      Any new purchase you make on a balance transfer credit card will be charged interest at the purchase rate and not the promotional balance transfer rate.

      Banks do repay the balance that’s accumulating the highest interest first, thus in most cases, your purchases that collect the standard interest rate will be paid off before your transferred balance.

      Given the low or 0% balance transfer offer is only in place for a certain number of months, it’s important you pay off purchases so you can repay your balance before the offer ends.

      You may need to reach out to your bank regarding this concern and review the fees, costs and terms and conditions of the offer to get better understanding of this matter.



  3. Default Gravatar
    FrankSeptember 28, 2013

    The Citibank website still seems to contradict the changes made last year. Is this correct?

    • Avatarfinder Customer Care
      JacobSeptember 30, 2013Staff

      Hi Frank.

      Thanks for your question.

      There is an exception when you have a revolving deferred interest promotion on your account. According to the Citibank website, ‘We are required to direct the amount of your payment in excess of your minimum amount due first to your next expiring deferred interest promotion, and then any remaining would be applied to your highest APR revolving balance.’ This may happen within a period of two to three months of when your low interest promotion expires.
      After this, your repayments will be applied to the revolving balance with the highest APR.

      I hope this helps.

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Data indicated here is updated regularly
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Westpac Low Rate Card
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Westpac Low Rate Card
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0% p.a. for 16 months
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* The credit card offers compared on this page are chosen from a range of credit cards has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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