Bi-Monthly Credit Card Payments
Bi-Monthly Credit Card Payments - Tips on Budgeting
Written by: Gary Foreman
I have heard that paying on a credit card debt every two weeks, instead of paying it once a month saves on interest and could pay off the debt faster. Is this true? I have been trying to put at least $50 on the debt, every two weeks, plus pay the minimum, once a month, but not seeing much progress. Will this help in the long run, more than the short term? Is there a better way to go about paying credit card debt off than bi-weekly? 
Sue M.
Sue asks a good question. Can paying a little extra every two weeks really reduce her credit card balance? And, the answer is (drum roll, please): sometimes…
Sometimes??? What kind of an answer is that? It’s a truthful one. But don’t worry. We’ll show you an easy way to see if your situation is one where bi-weekly payments are a good idea.
The first thing we need to do is to learn a few facts about credit card accounts. Most of us get a monthly bill. We can pay all of it, just the minimum or something between the minimum and all of it. You already knew that.
What you might not have known is that your payment is credited to the account the day that it’s received. Not on the due date on your statement. That’s important because of the next fact.
If you carry a balance on your account, the amount you owe is racking up interest charges every single day. You may think that you’re paying 14.04% (Bankrate.com http://www.bankrate.com/credit-cards.aspx). That’s the annual rate. You’re really paying 0.03846% per day.
The bank will calculate your balance daily and also how much interest you owe for that day. Anything that reduces your balance will reduce the amount of interest charged for that day and all days after.
OK, so making an extra payment every two weeks is a good idea, right? Not necessarily. It could be that you have better options.
We’re going to do some calculations. But, let’s be honest and admit that most of us don’t like math. So if you’re math-phobic you can just skip the next two paragraphs. You don’t need them to get to the right answer.
Sue is putting in an extra $50 two weeks before she sends in the rest of the bill. So how much does that save her? To borrow $50 at 14.04% will cost her $7.02 per year or 1.9 cents per day. So paying $50 14 days early would save Sue 26.6 cents.
But the stamp to mail in the check will cost nearly twice that. Not to mention that her time is worth something. So sending in an early check actually costs her more than she saves.
So how can Sue tell when it makes sense to send in an extra early payment? Actually, that’s not hard at all.
It makes sense to pay your credit card bill more than once a month if any of these are true:
- you can make your payments online
- you have the money now, but might spend it before your credit card due date
- the amount that you’re sending is $200 or greater
- you feel that you need the discipline/deadline of weekly or bi-weekly goals
If not, just pay your bill once a month.
The most important thing you can do to pay off a debt is to pay more than the minimum amount. Every time you do, you reduce the amount of interest that you’ll have to pay for every day in the future. So the biggest effect on Sue’s balance is the extra $50. That’s true whether it’s a separate payment or if she adds it to her regular monthly payment.
Also, remember that you can pay your bill early. If you really want to save that 26 cents, just mail the bill a week before it’s due.
Here’s hoping that soon Sue won’t have to worry about early payments. All she’ll need to do is to pay the entire balance when the bill comes each month.
Keep on Stretching those Dollars!
Gary
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Gary Foreman is the editor of The Dollar Stretcher.com and e newsletters including Financial Independence. Financial Independence is designed to walk step-by-step with you as you take control of your finances and achieve financial freedom!
Tagged with: Budgeting tips • credit card payments • personal budget planning • personal budgeting • Web Page Finance
Filed under: Debt Settlement
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Very nice tips. Now i have learnt that how to manage budget. Thanks for sharing these tips with us.
Thank goodness credit card companies are now showing the consumer the length of time required to pay off their balance with minimum payments. I think its safe to say most of us are not mathematicians
Took me time to read all the comments, but I really enjoyed the article. It proved to be Very helpful to me and I am sure to all the commenters here! It’s always nice when you can not only be informed, but also entertained! I’m sure you had fun writing this article.
Thanks Gary! Your article really gave a thorough explanation on things which other people might have not known about credit cards and payments. I realize I don’t have to really stress out about early payments. What’s important is paying all of the balance monthly.
.-= Lisa@CreditCardComparison.com.au´s last blog ..The Advantages of Having A Credit Card =-.
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