Paying More Than The Minimum

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.

Anum

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

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