Most major credit card companies have resumed filling mailboxes with various types of credit card offers on what feels like a daily basis. Some are solicitations to sign up for new reward credit cards with huge sign bonuses. Others come from companies that consumers already have accounts with and often include 0% balance transfer checks that encourage users to transfer high rate balances to their cards.

Unfortunately, opting to transfer balances to a card that already has a balance or which is used to make new purchases is not the ideal way to maximize balance transfer savings. This is primarily due to the way credit card companies allocate minimum payments. The impact this can have on overall savings should thus be considered before opting to transfer balances to an existing account.

How Credit Card Companies Allocate Minimum Payments

The CARD Act allows credit card companies to allocate the entirety of any minimum payment however they choose. In most cases, this means that every dollar of minimum payments is used to reduce the portion of a consumer’s credit card balance with the lowest interest rate. Consequently, if a consumer has a $40 minimum payment and carries $1000 at a 0% rate via a balance transfer and $1000 at 15% from purchases, the 0% balance will be reduced by $40 and the 15% balance will remain at $1,000.

This method of allocating minimum payments can have a relatively large impact on balance transfer savings, particularly for consumers who have large minimum payments already. Adding more debt to the card via a 0% balance transfer will increase the minimum, meaning less money will be allocated to high rate balances.

When is it a Bad Idea to Transfer Balances to an Existing Account

The short answer to this question is always, though there are some qualifications. If you currently don’t use the card for purchases and don’t intend to use the card for purchases in the near future, then the minimum payment allocation problem is irrelevant. However, if the card is used regularly or currently has a balance, it would make more sense to apply for a new card that offers a 0% APR on purchases and balance transfers and move all debt to the new credit card.

Ultimately, the most efficient way to extract the value out of a 0% APR balance transfer offer is to use a new card and move all debt over. This will put a temporary hold on interest expenses for one year or longer, depending on what the market currently offers. At present, many cards offer 0% rates for 15, 18, and even 21 months for both purchases and balance transfers. For most consumers, these cards offer the highest potential for savings.