When working on repaying my credit cards faster than minimum payments, am I better off paying $10.00 a week more or the same amount once a month? Thanks.
Penny from Michigan
If you have internet banking so you don't pay postage, then definitely pay the $10 every week. The interest is charged every single day, so you will save some money, also you won't have that $10 so you won't be tempted to spend it.
Internet banking is free, and so easy. I even pay my brother and sister that way, to distribute a small inheritance that comes in every month. You don't have to set it up as an automatic payment if you don't want to, it only takes a few seconds to go in and order the payment every week.
Congratulations on doing this. Being debt-free is an amazing feeling. Do you get the Debt-Free Living free newsletter? If not, sign up for it. It's got good info and motivation.
The quicker you reduce the amount the better as the interest is charged on the amount left over at the end of the month or payment cycle - I would recommend being flexible depending on what other payments you need to make that month - have a set amount that you won't go below but like say $10 or $15 over and above the minimum but then if you can afford it put more in do so. If you just keep paying the minimum amount the debt never gets paid and any savings made at sales using the credit card is negated
Credit cards are "revolving" monthly. So I don't think that making a payment every week is going to help; however, if that's the only way that you're sure to make the extra payments, by all means go ahead and do it. But adding up your extra money every week and sending it in monthly with the bill would be the same. But then again, you might want to check with your credit card company. Because it seems that with some companies interest might be charged on a daily average and if you're paying week by week, your daily average would be smaller.
If you get offers in the mail, occasionally you can transfer your balance over to a 0% interest that can last for a whole year. Sometimes there is no transfer fee. If there is one, it is usually 3% of your balance. And depending on how much you owe, sometimes the transfer fee is cheaper than paying your current interest for a year. You must make sure that you are never, ever, ever late though with a payment for the 0% rate to stay in force.
I transferred a balance once and paid the transfer fee and made one payment. The next month was when we had our famous ice storm of 2007 and even though I had the money in our account to pay the statement when it came, with all the confusion of the ice storm, I totally forgot it. I was two days late and the company upped my rate to something like 15%. They refused to "forgive" the lateness.
Luckily the very next month I received another offer with 0% interest and no transfer fee (they do not come along very often), so I took advantage of it.
It is nice to know that 100% of my payment goes to pay off the principle of the balance for the time being.
It will depend on each card and how much extra you can swing a month ...
Let's say you have four cards and each have a balance due of $1,000.00 and each card is asking for a minimum payment of $50.00 per month ...
Card one charges 18 APR, the next, 20 APR, the next 22 APR and the last 24 APR ...
Based on those figures, what I did in the past was to add at least an 'extra' fifty to each card PLUS the added charged in interest for that month ... This way, I was 'getting ahead' as far as reducing the amount owed and the interest charges went down immensley in no time at all ...
Those bills were completely paid off in just a little over a year based on the debt amounts I mentioned above ...
No matter what, pay as much extra as you can above the requested minimum payment or else you'll be paying on those cards for years and years to come :-(
I now only use those cards in case of an emergency or convenience and pay them in full each month so not a penny of interest is charged :-)
Most credit cards charge interest on the remaining balance, each month. When I need to pay them off over time, I look for the interest & add as much as i can, usually, for me, it's $100 plus interest so whatever amount u add to the minimum is to the good.
A word of caution:
I often pay credit card bills before the due date and make extra payments when I get extra cash.
Recently, I paid a bill ONE DAY too EARLY for thier system. They didn't count it toward that month's minimum payment. Even though I had payed more than 100 dollars over the minimum payment, I got a late notice. When I called, they removed the late fee but advised me that I can not pay more than 10 days before the due date. Now, I think that's pretty rotten as they tell you to allow 7 days for processing. But, you've got to play their game. So, I make the minimum payment (at least) just before the due date and then make other payments as I have the money. I really can't wait to be rid of this bill!
I recently was trying to figure out who to pay what when and how much extra - I found bankrate.com - they have a section paying of credit cards that you enter how many bills you want to pay off, how much the interest rate is the minimum payment and how much extra you can afford a month. Then it calculates for you where to send the extra and when telling you how long it will be before you are debt free. It is nice to know that there is light at the end of the tunnel. We have 23 months and we should be free.
If you have multiple cards, you can do what is called a snowball. You pay the minimums on all cards but one, and pay as MUCH as you can toward that one card until that card is paid off. Then you take the payment you were making on that card, and add it to the next one.
The order in which you snowball depends on whether you want to get out of debt the fastest, or pay the least in finance charges. Some people attack the lowest balance first, since that will result a nice psychological boost. Others pay the debt with the highest APR first, cuz its the most expensive. You would have to work it out mathematically to see how these options break out.
---Credit cards are "revolving" monthly---
Many credit cards compound DAILY, and some use 2-cycle billing to maximize how much they charge you. Some cards also start charging interest from the moment you make a purchase, not just based on the statement balance.
I agree that there is not going to be a large difference between making extra payments each week.
---If you have internet banking so you don't pay postage---
I recommend making the payment through the card issuers website, not your banks.
You could try playing the 0%/balance transfer game, but if you haven't solved the problem which got you into debt in the first place, you may just be tempted to run the cards back up again. Pay a lot of attention to the terms and fees also.
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