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Micropayments:
a Strategy to Cut Credit Card Debt
Multiple Monthly
Payments Slash Debt, but Watch the Rules
By Erin Peterson
Many people get into credit card debt not because
of a single big purchase, but because of many smaller ones. Whether it's too
many restaurant meals or too many extra purchases tossed into the shopping cart
each week, small amounts quickly add up.
If you're smart, you can use that same principle
to work for you, not against you. Instead of making a single credit card payment
each month, you can spread the bill out over several smaller (and less painful)
payments.
Multiple payment advantages
Multiple payments can:
- More closely align
paychecks and payments.
Paid every week? Make a small payment every week
instead of one big one each month. You'll even out
your monthly cash flow.
- Pay down credit card debt
more quickly, in the
same way a biweekly mortgage works. With biweekly
mortgages, homeowners pay half their monthly
mortgage amount, but they pay it every two weeks.
With 52 weeks in a year, that means 26 half payments
-- or 13 monthly payments instead of 12. On a
mortgage, biweekly payments can shave about seven
years off a 30-year mortgage. The same principle
would work if you divided your monthly payment in
two and then paid that amount every two weeks.
- Take advantage of
windfalls. Once you
get in the habit of paying multiple times, credit
card payments will come to mind if any windfalls
come to your wallet.
- Build good payment habits
and increase satisfaction.
Seeing your balance fall day by day keeps you
focused on the task of climbing out of debt and
builds a sense of accomplishment.
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Melissa Gullickson has paid off three
of her five credit cards in the past year by paying at least the minimum payment
twice a month. She times the payments with her paychecks and makes additional
payments when she gets a windfall, like this year's stimulus check.
Gullickson says the double (and triple) payments help her even out her cash flow
and give her a real sense of headway. "Paying twice the minimum really helps
make actual progress on the balance," she says. "Just paying $50 a month on a
$2,000 [debt] gets you nowhere."
Some people get even more ambitious about frequent payments, putting a few
dollars toward their debt every few days. The tactic offers immediate
gratification for those who need more incentive to dig out of debt. If you
resist buying the latest DVD or pair of shoes while you're at the mall, you can
put the money you saved toward your debt the same day.
While the major credit card issuers are all fairly flexible about making such
payments, check the chart below before you consider this tactic to tackle your
debt. Several companies limit the number of online payments you can make each
month. |