Virgin Money will switch to a positive payment hierarchy from September 2010, to further improve its credit card range to enable customers to pay off their most expensive debt first.

According to the company, under the new terms and conditions, repayments will be allocated to clearing debt charged at the highest interest rate before debts at lower rates, which means the vast majority of customers who don’t pay off their balance in full each month will pay less interest.

The change is expected to save around GBP70 annually for customers transferring a GBP3,000 balance to a Virgin Money card at a 0% promotional rate and then spending GBP1,000 at higher standard rate on the card over a year, as repayments will now go towards paying off the higher rate card purchases first.

Virgin Money took the first step towards the revamp with the launch of its 12/12 credit card, offering 0% for 12 months on card purchases and balance transfers (18.9% typical APR (variable), 2.98% fee for balance transfers) in March ahead of a joint industry agreement announced by the Department for Business Innovation and Skills and the UK Cards Association.

The payment changes will come into effect from September 1, 2010, across the Virgin Money credit card range, which includes its Virgin Money Credit Card, offering 0% for 14 months on balance transfers (2.98% fee) and 0% for three months on card purchases, (typical 16.6%APR (variable)) plus its cash back Charity Credit Card, which offers 8.9% on balance transfers until the amounts transferred are paid off (typical 12.9% APR (variable).

Grant Bather, spokesman at Virgin Money, said: “Changing the order of payments is the next logical step in the enhancement of our credit card range. Our aim is to make everyone who is a Virgin Money credit card customer better off and we hope this change goes some way to achieving that.”

The new credit card joint industry agreement comes into effect in January 2011 and includes the right to refuse credit limit increases and to request credit limit reductions; the right to have more time to reject rate increases; the right to annual statements showing the cost of their card; and for people in financial difficulties the right to more information including comparisons of the cost of only paying the minimum on their card.