Pay Down Your Debt Creatively

| November 17, 2007

Will it ever go away? Each month you send the monthly payment and the balance seems to remain the same. Here’s how to pay the same amount and see better results.

Those pesky credit card balances never seemed to go down. No matter how many payments are made, it seems like the balance always remains the same. There is a way to creatively pay the credit card balance to make each payment make a bigger dent in the outstanding balance. The amount paid each month will still be the same, however, the way in which it is paid will change.

Here’s how to go about knocking down that outstanding monthly balance without changing the amount of payment each month.

  1. Find out what the interest rate acronyms mean and figure out how the interest is calculated. Credit card companies confuse consumers with the various interest rates. There’s the APR, fixed APR, variable rate, rate on purchases, balance transfer rate, rate on cash withdrawals and on and on. It’s best to review the interest rates, understand how they are accrued and then decide the best way to attack the outstanding balance to incur the least amount of interest charges.
  1. Decide how to budget extra credit card payments on a monthly basis. Decide how frequently to make payments. The payment frequency should tie into income. If household income is earned weekly, then decide if weekly payments will fit into the budget. If payment is earned bi-weekly, then think about bi-weekly credit card payments. Making several payments during the monthly billing cycle serves to reduce the amount of interest accrued. Additionally, since there is less accrued interest, a larger portion of the monthly payments are applied to the principal thus knocking down the outstanding balance quicker.
  1. Always meet or exceed the minimum monthly payment due. No matter how many payments the credit card company receives, they still charge late charges if the minimum monthly payment isn’t met. What good is sending $25 payments every week when the minimum monthly payment is $150? To avoid incurring late payment charges, which will only serve to further increase the outstanding balance, be sure to meet or exceed the minimum monthly payment due.
  1. Take advantage of electronic payments. It’s not always possible to mail payments to the credit card company. Vacations, holidays, and unexpected trips away from home may interrupt the payment schedule. By pre-scheduling the payments through the credit card company’s website, banking software or money management software like Quicken or Money, the payment schedule can continue uninterrupted.
  1. Be consistent. For incentive, try to calculate how much interest savings are being realized by paying more frequently. Use an online credit card calculator. It’s a great way to stay motivated to make those extra payments. With consistency, discipline and planning, the outstanding credit card balance can be reduced much more quickly.

Note: Using this type of payment schedule to knock down mortgage payments may or may not work. Many mortgage companies charge a fee to change monthly payments to bi-monthly. Weigh the benefits and calculate the potential savings carefully before making a decision.

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Category: Credit

About the Author ()

Felicia A. Williams is a wife, mother, freelance writer and owner of Tidbits About Money.

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