Cut credit card interest costs by exceeding minimum payments
Paying just a little more than your credit card's monthly minimum payment makes a big difference. Let’s take a look at Tom and Sarah to see just how big.
Paying just a little more than your credit card's monthly minimum payment makes a big difference.
Let’s take a look at Tom and Sarah to see just how big.
Tom and Sarah both charge super-sleek, razor-thin laptops on the same day for $2,000. (Peter and Mary are both very cool cats.)
So each has a beginning balance of $2,000. If you think of debt as a pile of dirt that has to be shoveled away, Tom and Sarah are starting out with equal piles.
Both Tom and Sarah's credit cards charge 18% interest -- and require a typical minimum payment of the interest, plus 1% of the total balance.
Tom only pays the minimum -- which means he's keeping ahead of interest charges, but not by much.
Sarah, though, is a go-getter. She pays an additional $10 each month.
It’s like having a helper digging alongside her. So Sarah's progress is quicker.
How much quicker?
By only making minimum payments it will take 131 payments -- almost 11 years -- for Tom to pay off his balance. Tom's interest charges will add up to $2,039 – more than the computer itself.
Sarah, however, will cut her interest payments and time in debt almost in half. She'll be in the clear after six and a half years and pay only $1,213 in interest.
By paying just $10 extra each month, Sarah saves $826 in interest charges and is done making payments 4.4 years earlier.
So Sarah can chill … while Tom's still diggin’.
Want to see how minimum payments make your pile of debt stick around? Go to CreditCards.com/calculators.