Speed Up Your Debt Payments Without Sending More Money
I'm In Debt
- Posted:
1/9/2008
I had an eye opening experience recently. It's completely common sense, but it just never really dawned on me to do it before I started using the "
schedule payments" feature of most credit card accounts, as I mentioned in my last post. What happened was, I saw the option to pay weekly, and it got me thinking!
Think about it. A credit card typically compounds interest daily. If you have a card with a balance of $1,000 . So if you make your payment once per month, the interest adds up like this:
Day 1: ($1000 x interest)
Day 2: [($1000 + interest day 1) x interest]
Day 3: [($1000 + interest day 1&2) x interest]
all the way to day 30 or however many days there are in between payments you make. So it makes sense then, if you were to pay more frequently, you actually save on interest. It doesn't mean you have to send more money, you can continue sending the same exact amount to your credit card bill each month; just send it in two payments and you'll save on the amount of interest you are paying which means more of your payment is going towards the balance and less is being applied to interest.
Credit cards work great for using the frequent payment method to help cut down how much you end up paying over the long term. Other accounts that you can really make a huge difference over time just by dividing your payments in half and sending twice a month rather than once a month include car loans and mortgages. You can save about 30% by making your mortgage payment twice per month rather than once a month- but be sure that your mortgage doesn't have a clause for prepayment penalties.
Comments
