If you’re like many Americans in debt, you remember when you first started using your credit card. At first, you may have been very careful to pay it off on time each month, but now, it’s started to accrue. It seems like you’ll never get out of debt, and you may even be considering bankruptcy.
Before you decide to take drastic measures, it’s important to see how paying just a little extra on a credit card can help eliminate interest and result in you paying it back quicker over time. Here’s an example. If you have a minimum payment of around $37 for $1,500 in debt, that will take around 159 months to pay in full with an average interest rate. If you have a higher interest rate, it could take longer.
If you decide to increase your payment by $20 per month, enough for a few lattes at a popular café, you could cut down the time it would take to pay that debt off by around two thirds. Your total interest charge would also drop, so you would pay less over the life of the loan.
Paying more than the minimum may seem like it’s not possible if you’re strapped for cash, but there are often expenses you can get rid of. Do you take one night away from your children a week, requiring a babysitter who charges $30? Cut out just one of those weekdays away, and you automatically save $30 that you can apply to your debt. Do you buy lunch out while you’re at work? Pack a lunch. You’ll save a few dollars each day, putting more money in your wallet. If money really can’t be cut from any other place in your budget, that’s when you may want to start looking into some other debt-relief options.
Source: Bank of America, “Save by paying more than the minimum,” accessed June 08, 2015