Saving On Credit Card Debt - Pay More Frequently

With 46.2% of all families now carrying an average $5,100 on their credit card from month to month, the need for help paying credit cards off cheaper and quicker is apparent. CardRatings.com, an award winning web site dedicated to credit card debt education, advises consumers who are able to strictly follow a plan to pay half the minimum payment every two weeks to cut interest charges and years spent in debt.

As an illustration of how the plan can benefit consumers, CardRatings.com offers the following example using a credit card balance of $5,000 with a 17% interest rate and 3% minimum payment. By sending in only the minimum ($150) every month, consumers pay $4,119 in interest alone with a total bill of $9,119—and it will take 14 years to pay of the debt.

However, if consumers follow the CardRatings.com payment plan and send in $75 every two weeks (or 14 days), then the interest total will drop by $2,521 and the debt will be completely gone in 3 years and 18 weeks.

The plan works because a half payment every two weeks results in 26 payments a year, which is the equivalent of 13 monthly payments instead of 12. This gives consumers an entire one month’s extra payment that goes completely toward paying down the principal. Additionally, banks are required by law to credit payments when received, unlike mortgage payments where lenders can credit mortgage payments only once a month.

CardRatings.com offers the following tips for consumers who want to implement the plan:

1. Start with the highest interest rate credit card, stop charging on it, and continue making at least the monthly minimum payment on all other credit cards.
2. Pay this month’s minimum in full by the due date.
3. Start sending in half the initial minimum amount every 14 days. Each payment will be the same amount as the first.
4. Make payments like clockwork so the lender receives the payment every two weeks.
5. Contact the card’s customer service department to find out if there are ways to speed up the payment crediting to the account.
6. Consider authorizing automatic electronic payments with the credit card issuer every 14 days as long as the service is free. Consumers can also contact their bank to set up electronic bill paying services if the bank is willing to transfer funds free every 14 days.

“This creative method of paying down credit card balance(s) is a secret that the bank card issuers don’t want you to know about,” says Curtis Arnold, president and founder of CardRatings.com. “If you’re in a position to adopt this method, then I strongly urge you to do so as soon as possible. Saving potentially thousands of dollars in interest in the long run should be quite enticing to most consumers—at least the ones I know!”

Consumers who benefit the most from this type of payment plan are those who follow the plan exactly. CardRatings.com warns consumers could end up with late fees, high interest rates, and a 7-year blemish on their credit report if they do not strictly follow the plan.

{Editor's Note: We received the following comment on this article via email:

You should check out the math in this article. The "solution" offered by cardratings.com does not involve "making payments twice as often". Their solution requires a constant payment amount as opposed to a variable payment amount (i.e., the 3% minimum payment amount) in order to reduce the term of the debt.