A major credit card shake-up will be complete this month with all providers set to stop penalising those who spend on their plastic after making a balance transfer.

The overhaul is a result of a government crackdown on card firms using your payments to clear your cheapest debt first (such as a 0% balance transfer) leaving debt at higher rates (such as spending) trapped, accruing interest at a rate of knots (see Best Balance Transfers).

New credit card rules also mean you now have two months to reject a hike in your interest rate.

Fairer payment distribution

Most firms changed their payment allocations late last year with the few remaining lenders set to follow over the next few weeks, so payments will clear your most expensive debt first (see the Credit card crack down MSE News story).

While those who spend after completing a balance transfer are most likely to be hit, the negative order of payments, as the payment trap is often called, affects anyone who has balances with different interest rates on the same card, such as those who spend and take out cash (as withdrawals are usually more expensive).

Nationwide Building Society, which has operated a positive order of payments hierarchy for years, says this card industry trick cost someone who spent after transferring a balance an average £224 a year in interest.

Below is a table outlining when each major provider's payment hierarchy changed/will change.

When will/did the order of payment trap end?
Provider Date
American Express November
Barclaycard November
Capital One November
Halifax / Bank of Scotland November
HSBC / First Direct / M&S December
Lloyds TSB 17 January
MBNA September
RBS / Natwest January (dependent on statement date)
Santander December
Nationwide and Saga offered positive order of payments for years

The shake-up doesn't mean you should go on a spending binge on your card. Only buy what you can afford and remember the best cards for purchases are often on different plastic to the best balance transfer deals (see the 0% credit cards guide).

Some commentators have warned card firms will hike other fees to make up for the lost revenue.

Reject interest rate hikes

New guidelines in the Lending Code state you have 60 days after being told of an interest rate to reject that hike, a jump from the previous 30 day deadline.

If you take this option, you won't be able to spend on the card again.

Credit card firms frequently hit those with patchy credit records or who they deem non-profitable customers with hikes.

American Express, for example, will hit thousands of customers with rate rises or new annual fees next month (see the Amex hikes MSE News story).

Further reading/Key links
How to get help: Debt Problems
Cut credit card debt: Best balance transfers, Reject rate-jacking
Get more: Credit Card Rewards, 0% credit cards