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Paying Off Debt And Saving Money Can Be Done At The Same Time.

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.

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Comments (20)

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  1. lulugal11 says:

    This is a well put way of looking at it. I love using my ING accounts to send payments in and that way I do not have to worry about the ‘big’ bill at the end.

    As for the saving while paying debt, I think most people are intimidated by the amounts they hear other people are saving. They think you need to save $50 or more a month for it to count and they get depressed because they don’t have that.

    I started saving $2 a month. Yes, TWO dollars. I had that sent to my ING savings account on a monthly basis for a LONG time and that was my savings. I was not ashamed of it and it was affordable so that was all that mattered. Then when I got a bonus or found money I would send the extra to the savings..but kept the monthly amount going.

    As I paid off more debt I increased the monthly amount little by little. Right now it is $10 a month, and while it will take me a long time to build up an emergency fund of $5000 at that rate…I am still paying off debt AND saving at the same time.

    Saving while paying off debt should be a mentality, not a figure…when you get out of debt you can aim for that saving $300 a month goal but until then do what you can.

  2. How about paying each time a paycheck comes in instead? There’s no reason to have money sitting until “Friday” while interest is accruing on the CC debt if it can be paid now.

  3. I love your voice; it almost made me wish I had a credit card balance so I can follow your advice and do that weekly solution. I hope I will do something for my website but it is a young site and has a long way to go.

  4. FutureRob says:

    Good advice! We went with a bi-weekly payment; that’s how we’re paid and how we budget. We couldn’t always make the large dollar figure we calculated we needed to pay it off in the timeframe we wanted, but we made up for that by directing any extra money from work bonuses to the card. I am thrilled to write that today, we made the last payment on what was (at it’s peak) $17,000 in credit card debt. And we did it in under two years.

  5. [...] you do it weekly or bi-weekly, the important thing is to pay that balance [...]

  6. John says:

    Great advice. You probably don’t earn any interest in your checking account anyways and the faster you get that balance down the more you save in CC interest, but one thing people often forget when they are struggling with credit card debt is to look at the actual interest rate they are paying. Several months worth of payments could be saved if you shopped around for credit cards with the lowest interest rates or intro APR offers.

  7. Bri says:

    I have to that that this can be a good way to pay down additional debt, but I think you overlooked a large group of people by assuming that most (if not all) jusd dread making the one large payment. Some people, myself included, honestly just can’t make the payment at all…no matter when they pay it.

    I used to budget our money as percentages out of each check. I totalled up our budgeted amts for bills, personal items, rent, gas, food, etc. Then I took the amt needed for the bills and our total income and divided them to get a percentage. I put that percentage in envelopes every month and so we were never “short” for bill money. That was when we made quite a bit more. Now, however, my husband and I have to choose between paying our utility bills and paying our credit cards. It’s kind of a no-brainer for us…we pay our credit cards and do the best we can on our utility bills. It just ends up costing us so much more if we don’t pay the cards.

  8. [...] Two Dollars presents: Paying Off Debt And Saving Money Can Be Done At The Same Time. Hooray to David at MTD for this post! I have believed this for years. If you don’t start that [...]

  9. [...] Two Dollars – Paying Off Debt And Saving Money Can Be Done At The Same Time.    This one made me laugh. I can’t do the weekly payments, but I do bi-monthly payments, [...]

  10. [...] Two Dollars outlines a way to pay off debt and save money at the same time. If even the minimum payments seem like too much, it’s a good [...]

  11. [...] writes that saving money and paying off debt can be done at the same [...]

  12. Dusty says:

    I must say that I have to disagree with Bri (see comment above). I would NEVER pay a credit card company before I paid the utility bills. Food, housing, clothing, and transportation should be the foundation of what you pay first. After that, if anything is left, I would pay the credit card companies.

    As far as the credit cards are concerned, I would first call them and explain your situation. I would even sent them a detailed budget of what you make and how your spending is currently allocated. Ask them to lower or eliminate your interest, stressing that you want to pay you bill but at the current interest rates, you simply cannot and will not jeopardize your family’s well-being.

    The next thing I would do is sign up for Dave Ramsey’s Financial Peace University. It can literally change your life. I am in no way affiliated with Dave or his company, but I believe in his methods 100%.

    @ David – Great post! I have now subscribed and look forward to your humorous style of writing.

  13. david says:

    Thanks Dusty, appreciate the comment and the kind words!

  14. Mark Nelson says:

    You almost make it sound easy. It is if you follow what you say.

    Great post,

  15. *bbj* says:

    This is GREAT advice. I have always put aside something, even when it seemed like I didn’t have enough coming in. The truth is, you make due with a little less (as little as a couple bucks a day can add up). I save to my ShoreBank account that way. You won’t miss that money as it goes to savings, but you’ll be very happy when you start to see the sum grow. It’s kind of like dieting I guess: You have to be happy with tiny results at first, but good habits inevitably bring good returns, and once you get the ball rolling it’s easier to keep it rolling. Also, I find that the more times I visit my money online, the easier it is to ignore that $3.50 energy drink or $4.50 coffee.

    Thanks for the post!

  16. Amy says:

    Phew! I knew my credit card payments were out of hand when my minimum balance due was an entire paycheck! So, I did exactly what you’ve recommended here. I’m not good at staying on top of payments, so I had $50 a week automatically transferred to my credit card from my checking account every week. Each month I pay $200, and my current past due amount is back down to $0. I also manage to put away $50 a week in my savings account. Though I do have to dip into it every now and then, I’ve found that by bringing lunch to work and limiting the number of times I eat out per week (once or twice, maximum) I can still save money while keeping my social life! Weekly payments add up fast, and they’re relatively painless. Great Advice!

  17. david says:

    So glad that worked for you Amy, and thanks for leaving the comment for others to read!

  18. [...] Paying Off Debt And Saving Money Can Be Done At The Same Time. [...]

  19. [...] Paying off Debt and Saving Money at the Same Time by My Two Dollars [...]

  20. Katie says:

    My problem is that once I put money on the credit card, we end up having to use it because we have no money. I budget our money and we try our best to stick to it. But something ALWAYS comes up. Like, the dog gets sick, the car breaks down, the air conditioner stops working (on the hottest day of the year I might add), etc. I told my husband that we used up all our good luck on each other. If stuff didn’t come up and we stuck to the budget, we would be paying extra over our minimum payments and we would have had $2000 in savings by the end of the year. But every single paycheck, something comes up.

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