I have been reading a lot of posts at financial websites lately about the trouble people are having paying off their credit card debt while trying to save a little extra money for themselves. First of all, anyone doing their best to pay off credit card should be commended, as we all need to be free of this “bad” debt and get ourselves some “good” debt. (For some reason that still makes me cringe, but I suppose there are good reasons to have debt, such as owning a house or going to school.) It is hard work to pay off years worth of charging up those cards, and even though it seems insurmountable, it is in fact possible to both pay off the debt and save some money at the same time. One of the biggest concerns about getting out of debt is how to come up with that giant minimum payment due and then trying to add an extra couple dollars to that as well. You know, that dreaded white envelope that shows up once a month, that you carefully put on the desk only to be opened later when you have taken your medicine, put on safety goggles and pulled up a comfortable chair that you will not fall out of. Sometimes it might say this:
Total balance: $ A Hell Of A Lot Of Money
Minimum Payment Due: Sell your first born child then we can talk
Due Date: Yesterday
So you think to yourself…”Self, how are you going to pay this without selling a kidney when you cannot even afford gas for your car?”…and here is how:
Two words….Weekly. Payments.
Huh? They don’t send me a bill every week, you idiot, how am I supposed to pay them every week? Now, I don’t know your individual banking habits, but for us, we use online banking. It makes everything so much easier! With online banking, you can schedule a payment to your credit card every week, no problem…you don’t need to get a bill from them to pay them! If you don’t use online banking, you can still pay them every week, but you will need the payment address, your account number, and your checkbook. Just write that check out and mail it in every Friday or whatever day you decide.
As for the advice from personal finance professionals to always add a little bit extra to your payments to help you get out of debt, here is where weekly payments can help you out. If your minimum payment due is $200 every month and you find that hard to come up with once a month, you could pay $50.00 per week every Friday. That way the $200 minimum is taken care of, and you only had so suffer a $50 loss each week. What if you added $10 to that weekly payment? You would then be paying $240 to your credit card every month, but only be missing $60 every week. Make sense? Weekly payments help by:
1. Taking away the fear of that pending once-a-month $200 payment.
2. Help you budget more effectively, as you only need $50 per week to go out the door.
3. By padding that $50 with a little extra money, you can pay off your card faster with only a tiny bit of extra pain every week.
4. By paying weekly, your average monthly balance continuously drops, saving you money in interest every month and shaving time off of your repayment plan.
Lets move on to saving some money for yourself. I know it seems impossible to save any money when you owe a lot to credit cards, but this is ESSENTIAL to always do. You never know when a financial problem is going to come up that needs to be taken care of, and having a little bit of money in the bank will help soften the blow. So, for saving money, its kind of the same idea as the repayment plan. Every week, shuffle a few bucks away into a savings account or money market account, such as the one from ING DIRECT. We have 3 accounts with them and never have any problems, and their customer service is great. (If you would like a referral for a bonus $25 in your account, please contact me. You get $25, I get $10, we both win). Over time, a few bucks a week will add up to a nice emergency fund that can take care of smaller problems instead of you having to whip out that credit card you have been trying to pay off!
So in conclusion, the best way to both pay off debt and save money is to do it on a weekly basis. It hurts a lot less to split your minimum payment due into 4 payments and make them every week than it does to try to come up with that giant one time payment. Also, for savings, you wont miss a few bucks a week….even just $10 every week into a savings account would add up to over $500 over the course of a year, and that’s not even counting the interest you would be earning as well.
Whatever you do, just keep paying that debt. If there is a single goal you should strive to achieve, its seeing that credit card bill show up on that normally dreadful day, and have it read:
Total balance: $ Free And Clear
Minimum Payment Due: Nothing…take the family out to dinner and put the rest in your savings account.
Due Date: Wont you please charge something so we can charge you interest?
The original version of this article appeared on My Two Dollars back in November of 2006.