Looking to get your credit card debt paid off faster? One way to do it is to pay more than the minimum. It’s a quick way to help your credit card debt shrink.
Think of it this way: if you have $5,000 in credit card debt with a 20% interest rate, and your minimum payment is 3% of the bill, you’re going to need 221 months to pay that bill off, if you only pay the minimum. That’s 18 years and 5 months to pay off that balance. And to top it off, you’ll pay $5,860.86 in interest. So that $5,000 bill will cost you more than double.
If you’re paying the minimum, you start out paying $150. A year after you start, that payment has dropped to $130, and a year after that, it’s $110. At 120 months, or 10 years, you’re paying $30 per month. At 120 months, you’re down to less than $1000 of the original balance.
Think of how fast you could knock out $1000 paying $100 or $150 per month. It would be done in less than a year, right? Well, if you keep paying the minimum, you’ll spend another 101 months paying that off. That’s another 8 years, 5 months. And, you’ll pay $860.86 in interest. That means that last $1000 is going to cost you nearly that much in interest charges.
If, instead of paying the minimum, you could pay a set amount each month, like that $150 that’s your first payment, you’ll pay your balance down quicker. A lot quicker. Try 50 months until totally paid off quicker. And you’ll pay $2359.18 in interest. Steep, but better.
If you want to reduce your credit card debt, then you need to come up with a payment each month that’s higher than your credit card’s minimum, and you need to stick with it.