Step 8: Capital & The Crossover Point

Should I send in more than the minimum monthly payment on credit cards?

"When it comes to paying off credit card debt, it doesn't pay to play by the rules. Biweekly payments, as opposed to traditional monthly installments, can significantly reduce the interest you pay on debt, says the Pocket Change Investor. Why? Your credit card issuer must credit your account as soon as the payment is received, no matter if it arrives before the due date, which means less interest will accumulate on the balance. By ignoring the minimum payment required and sending in the same amount every two weeks you can save thousands of dollars in the long run.

Say you owe $3,500 on a credit card that charges 17%, and your card company asks for a minimum payment of $70. And you are strapped for cash. Resist the temptation of simply paying the required minimum -- which will decrease as the balance drops -- until the card is paid off. Instead, pay biweekly payments of $35 (half of the current minimum) until the card balance reaches zero. The difference is striking. Paying off the balance by sending in just the required minimum would take 30 years and cost you around $7,000 in interest alone. Sending $35 every two weeks would mean taking only 7 years to become debt free and would cost you around $2,000."

Somerville Journal, Thursday, May 29, 1997

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