Save by paying more than the minimum
How paying just a few extra dollars per month can help you pay down credit card debt and save big on interest.
If you pay the minimum on your credit card most months, you might be surprised at how much faster paying another $10 each month can help you get out of debt. It may not seem like a lot, but paying more than the minimum on credit cards means that you’ll owe less in total interest charges in the future. Here’s how it works.
The payoff from paying an extra $10.
Paying just $10 more than your minimum credit card payment can lead to long-term savings.
The monthly total minimum credit card payment for a Bank of America credit card is 1% of your current balance plus interest charges and any late fees for the month. Let’s look at an example that uses a credit card balance of $1,500 and an APR of 18% to illustrate how increasing your monthly credit card payment to $10 above the total minimum due can save you time and money.
- Paying just the total minimum due: With an initial minimum payment of $37 per month, it will take 159 months to pay off that $1,500 debt, with a total interest charge during the payback period of $1,760.
- Paying $10 more than the total minimum due:Footnote1 With a set monthly payment of $47 (the initial $37 due plus just $10 extra), it’ll take 44 months to pay off your debt, with a total interest charge of $557.59 during the payback period.
The potential savings: By paying $10 more than you would if you pay the minimum on your credit card, and keeping up that fixed payment amount until the debt is fully repaid, you could save $1,202.41 in interest payments and pay off your debt 115 months sooner — that’s almost 10 years sooner.
Other advantages to paying more than the minimum:
- A lower debt-to-income ratio. By reducing your credit card debt, you’ll help improve your overall debt-to-income ratio, a sign to lenders that you are able to afford your current level of debt. Keeping your debt load manageable can help you qualify for better credit card interest rates, and other loan rates.
- Help protect your credit score. Getting out of debt may help you to improve your credit score. As you lower your debt owed, your credit utilization rate will improve; that’s one of the factors that determines your credit score.
How to find money to pay more than your credit card total minimum payment:
- Focus on budgeting. Look for expenses you can trim. Reduce two monthly expenses by $5 (or cutting two $5 lattes) and you’ve just found $10 to add to your credit card payment. Small changes to your budget can make a big difference when you apply your savings to your credit card payment.
- Get qualified credit counseling help. The National Foundation for Credit Counseling can put you in touch with an accredited counselor who is able to give you budgeting advice and devise a plan to help you get out of debt.
Understanding how paying even a little more than the total minimum credit card payment could save you a lot of time and money may help motivate you to increase your payments. The reward will be the satisfaction you get from retiring your credit card debt faster (and the extra savings, of course). To find out for yourself how much you can save by paying more than the total minimum, try our credit card payment calculator.
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