Fifty bucks doesn’t sound like much money in the grand scheme of things. So when I suggest that you cut back your spending so you can free up an extra $50, you’ll probably doubt it’s even worth it.
Saving money isn’t necessarily about the specific amount that you save, but what you can do with the money you save. Would you believe me if I told you that freeing up an extra $50 in your budget would allow you to potentially save thousands of dollars? It’s totally possible for those of us who are paying off a credit card balance.
Money savings example Pretend you have a $10,000 credit card balance with a 16% APR (an APR that’s just a little above the current average). The typical minimum payment for that balance would be 3% or $300. If you make just the minimum payment every month, it would take you 16 years and 9 months to completely repay your balance, assuming you make no additional charges to the account. By the time you pay off the balance, you’ll pay a total of $7,277.97 in interest. That’s almost 75% of the original balance.
If you could add an extra $50 to your payment, sending $350 every month instead of the minimum payment, you would pay off your balance in three years and pay just $2,459.99 in interest. Your $10,000 balance would be paid almost 14 years faster and you’d save almost $5,000 in interest.
Justification for paying more Many people pay the minimum not only because it’s easier, but also because it’s all they can afford. A $300 credit card monthly payment is pretty steep as it is. But do you really want to continue sending payments to that credit card issuer every month for the next almost seventeen years? A lot could happen in sixteen years that would affect your ability to pay off that credit card balance. Your interest rate might go up, your income could change, or you might take on new responsibilities that make it harder to pay off the balance. By making the sacrifice and paying the debt off sooner, you’re actually taking a big step to secure your financial future.
Testing your own scenario This $10,000 example won’t apply to everyone. You might have a higher or lower balance. Or, you may have a different interest rate or minimum payment. You can do your own calculation using a credit card repayment calculator from CNN Money. The calculator lets you enter basic details about your debt – the balance, interest rate, and minimum payment. Then, you choose a repayment plan: minimum payment, fixed payments (where you’d add $50 or some other amount to your minimum payment), and a debt-free deadline which allows you to see the payment necessary to pay your account by a certain date. You can enter multiple accounts into the calculator, so you can create a repayment plan for several different credit cards, even if they have different balances, interest rates, and payments. The calculator will give you a detailed plan that lists the amount you should pay to each account each month until they’re all repaid. Whether you come up with $25, $50 or even $100, anything you can add to your monthly credit card payment will make a big difference in the time to repay and the interest you pay.
This is a guest post written by Eliza Collins, a professional writer specialized in the personal finance space. Eliza’s experience includes working for financial institutions, private debt relief companies as well as years of balancing the family budget. You can read more of her articles at the debt settlement blog.
Saving money isn’t necessarily about the specific amount that you save, but what you can do with the money you save. Would you believe me if I told you that freeing up an extra $50 in your budget would allow you to potentially save thousands of dollars? It’s totally possible for those of us who are paying off a credit card balance.
Money savings example Pretend you have a $10,000 credit card balance with a 16% APR (an APR that’s just a little above the current average). The typical minimum payment for that balance would be 3% or $300. If you make just the minimum payment every month, it would take you 16 years and 9 months to completely repay your balance, assuming you make no additional charges to the account. By the time you pay off the balance, you’ll pay a total of $7,277.97 in interest. That’s almost 75% of the original balance.
If you could add an extra $50 to your payment, sending $350 every month instead of the minimum payment, you would pay off your balance in three years and pay just $2,459.99 in interest. Your $10,000 balance would be paid almost 14 years faster and you’d save almost $5,000 in interest.
Justification for paying more Many people pay the minimum not only because it’s easier, but also because it’s all they can afford. A $300 credit card monthly payment is pretty steep as it is. But do you really want to continue sending payments to that credit card issuer every month for the next almost seventeen years? A lot could happen in sixteen years that would affect your ability to pay off that credit card balance. Your interest rate might go up, your income could change, or you might take on new responsibilities that make it harder to pay off the balance. By making the sacrifice and paying the debt off sooner, you’re actually taking a big step to secure your financial future.
Testing your own scenario This $10,000 example won’t apply to everyone. You might have a higher or lower balance. Or, you may have a different interest rate or minimum payment. You can do your own calculation using a credit card repayment calculator from CNN Money. The calculator lets you enter basic details about your debt – the balance, interest rate, and minimum payment. Then, you choose a repayment plan: minimum payment, fixed payments (where you’d add $50 or some other amount to your minimum payment), and a debt-free deadline which allows you to see the payment necessary to pay your account by a certain date. You can enter multiple accounts into the calculator, so you can create a repayment plan for several different credit cards, even if they have different balances, interest rates, and payments. The calculator will give you a detailed plan that lists the amount you should pay to each account each month until they’re all repaid. Whether you come up with $25, $50 or even $100, anything you can add to your monthly credit card payment will make a big difference in the time to repay and the interest you pay.
This is a guest post written by Eliza Collins, a professional writer specialized in the personal finance space. Eliza’s experience includes working for financial institutions, private debt relief companies as well as years of balancing the family budget. You can read more of her articles at the debt settlement blog.
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