advantages of positive payment hierarchy
Benefits of positive payment hierarchy
Credit card holders use their card for various purchases which include buying groceries at the supermarket, transferring balance or withdrawing cash in some cases. The interest rates associated with each transaction that you do on your credit cards vary substantially. For instance, the interest rate for withdrawn cash can be high whereas that for balance transfers is lower. Earlier, credit card holders were required to pay their credit card debts according to an ascending order of the APR; the credit taken at lower APR would be paid first followed by higher interest debts. This is called as negative payment hierarchy which makes it very expensive for customers to pay off their credit card bill as the high interest debts keep accumulating. But, by year 2011, most of the credit card issuers will start using positive payment hierarchy while recovering credit card debts from the card holders. Positive payment hierarchy works exactly the other way round as compared to negative payment hierarchy.
Advantages of positive payment hierarchy
- In positive payment hierarchy, the credit card debts with the highest interest rates are paid off first. Due to this, the customers eventually end up paying lesser interest on their credit card and naturally, save good amount of money.
- As the debts with higher APR are paid off first, the interest does not accumulate. Thus, it saves additional amount and stress for the card holder.
- In some cases, it becomes troublesome for card holders to pay their credit card bills due to a substantial amount of accumulated interest. And in many scenarios, these bills are never recovered and as a result, the credit score of card holders is downgraded due to bad credit. With the application of positive payment hierarchy, customers can easily overcome this obstacle.
The advent of positive payment hierarchy is indeed a boon for credit card holders. They can pay off their multiple credit card debts by choosing the priority of bills themselves. It will certainly help customers to save substantial money and manage the finances perfectly.
