Understanding Credit & Debt
An Extra $10 a Month Pays Down Your Debt Faster
Managing your credit card balances can be like managing your weight. The more you put on, the harder it is to take off.
If you're feeling overwhelmed at the size of your current credit card balances, here's a simple strategy that can help you get them back to a "healthier" number.
It starts with understanding your minimum payment and why it's important to always send more.
At times, sending the minimum monthly credit card payment may seem like all you can afford. But if you can somehow find a way to send more — even just an extra $10 a month — you can save yourself a lot of money in the long run.
Can paying just a few dollars make a big difference? You have to see this example to believe it.
Let's assume you have a credit card balance of $2,000 on a card with an interest rate of 18%, and the monthly minimum payment is 1% of your current balance (plus interest charges and any late fees for the month). And let's assume you're not putting any new charges on this card. If your minimum monthly payment is $50 and that's what you send every month, it will take 182 months to pay off that debt. That's more than 15 years.
In that time, you'll end up paying an extra $2,423.22 in interest alone. So in total, you'd actually have to pay your credit card $4,423.22 to get rid of that original $2,000 debt.
Now, wait until you see what just $10 extra per month would do.
Just by sending an extra $10 for a total payment of $60 instead of the minimum of $50, you could save yourself 11 years worth of payments. Yes, you'd be rid of that debt in 47 months — a little less than 4 years — instead of 15 years! You'd also be sending just $793.44 in interest payments, compared to over $2,400.
Sending an extra $10 a month would mean your grand total in payments to that card would be reduced from over $4,400 to $2,793.44.
So the next time you're making a credit card payment, think about adding $10 and taking many months and dollars off your debt.
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