One of the biggest frustrations that come with paying down your credit cards, is that a large amount of your money goes towards the interest on the account.
With so much money tied up in interest, it’s very difficult to make headway and ultimately pay off your cards.
And if you aren’t able to pay more than the minimum payment, paying off your debt is next to impossible.
Enter bi-weekly credit card payments.
By using a bi-weekly payment strategy, you can direct more money towards the principal debt, and less money towards the interest, all while paying the minimum payment each month.
How to pay off credit card debt faster with bi-weekly payments
When you have a balance on your card, and let’s face it, most folks do, your credit card usually charges you a daily periodic rate – a daily interest rate which is then added to the previous day’s balance.
This means interest is compounding on a daily basis. As a result, your total balance rises each day as well.
If you make your payment at the end of the billing period, you’re paying interest on the full balance for the entire billing period.
On the other hand, if you pay more often, you lower your daily balance and therefore you pay less interest each month.
“When you make a payment early in the billing cycle, the average daily balance goes down which means you pay less in interest,” says financial advisor Teri Adams.
What are the benefits of bi-weekly credit card payments?
The benefits of bi-weekly payments are striking,
1. Pay less
With micropayments, you pay less interest and cut your repayment time considerably.
2. Pay off faster
Because more money is going to the principal, you pay off your debt much faster than if you strictly made a single minimum payment each month.
3. 13 annual payments instead of 12
If you make half payments every two weeks, you end up paying 26 half payments, or 13 full payments a year. That’s one additional payment each year over the traditional monthly billing schedule.
Financial advisors have long recommended this trick to homeowners as a way to eliminate some of the interest paid, cutting a 30-year mortgage down to a 23-year mortgage.
If this trick works for homeowners, why not use it to pay down credit card debt as well?
You can spread out your debt each month and not have to stress about coming up with the money as the due date nears.
4. Potentially improve credit score
Most credit card issuers report your outstanding balance to the credit bureaus every month. If your credit card company reports on the 1st, but you usually pay your balance on the 15th, your account would show a higher balance on your credit report.
Making bi-weekly payments keeps the balance lower which could, in turn, improve your credit score.
5. Reduces financial stress and keeps you motivated.
Nothing is as motivating as progress. Seeing your debt balance consistently getting smaller improves your confidence and keeps you focused on your ultimate goal of eliminating your debt completely.
Will bi-weekly payments work for everyone to pay down credit card debt?
A bi-weekly payment strategy is most effective with large balances that carry a high-interest rate. If your balance is small, bi-weekly payments won’t make much of a difference for you.
How much can you save?
How much you save really depends on when you submit your payment.
For example, a balance of $10,000 with an 18% interest rate calculates out as a $5 periodic daily rate on the first day of the billing schedule. Then, every day thereafter, the interest compounds. So you could be paying $150 or more in a given month.
If you made two bi-weekly payments, each for half of the minimum payment, you could cut that interest in half, with the rest going to the balance.
Of course, this strategy works even better if you make more than the minimum payment each month.
“I made a mini-payment every payday,” says Gina Alvarez, who recently paid off nearly $14,000 in credit card debt. “I tried to add a little extra each time, even if it was only $5 or $10. It may not sound like much but it adds up and it was fun seeing the balance get smaller each time.”
What you need to know
Before you start, check with your credit card issuers to make sure they allow for multiple payments each month.
This is becoming less of an issue as nearly all the major banks allow for multiple payments each month.
Terms vary from bank to bank though, so it’s still wise to make sure there are no limitations with your credit card companies.
No sign-up necessary. If you bank online, you can easily select which account you are paying and verify that it’s applied correctly.
You won’t receive a statement each time you make a payment, so it’s best to pay the bill online to track your payments and your updated balance.
Decide how often you want to pay.
Many people find it easiest to pay on payday so they don’t have to worry about paying the entire amount on the due date.
So let’s say you have a $200 minimum payment. If you get paid bi-weekly, send $100 to your credit card issuer every two weeks on payday. If you get paid weekly, submit $50 every week on the day you get your paycheck.
If your bank allows it, you could even make payments every three days, or even daily. It all depends on your comfort level and what works best for you.
Make sure the bi-weekly payments will add up to, at the very least, the minimum payment required each month.
For an additional benefit, continue to make the same payment each month, even as your balance, and minimum payment, goes down. That ensures even more of your money goes towards the principal balance and saves you more in the long run.
The beauty is you are paying the same amount each month, but you’re reducing your debt much quicker because more of your money is going towards the principal debt, not the interest.
Other ways to cut down interest
Pay more than the minimum payment.
Paying more than the minimum is the best way to cut down credit card interest. Combining that with bi-weekly payments slashes your interest even more and reduces the time needed to pay off your debt.
Pay on the first day.
If you can afford it, pay at least the minimum payment on the first day of the billing cycle to eliminate as much interest as possible.
If that’s not possible, then make micropayments according to a schedule that works best for you. Just make sure you pay at least the minimum payment each month.
Apply windfalls to your principal.
Anytime you get a windfall, such as a bonus check from your employer or an IRS refund, apply it to your balance for a huge impact on your debt reduction results.
One way to create savings is to use Trim, which automatically finds where you’ve overpaid on utility bills get that money back for you. They then contact those companies on your behalf, secure the overpayment, and deposit it into your savings account. (Trim review)
Stop using the credit card.
It doesn’t make much sense to apply the micropayment strategy if you continue adding charges to the card.
Cut all the cards, or put them in a safe place in your home, so you’re not tempted to use them for impulse buys.
Consolidate your credit card debt.
If you have a large amount of high-interest debt, and you don’t think you can make progress with your monthly payment, you may want to consider consolidating your debt.
See if a balance transfer card with 0% APR offer works for you. Here is an article about who should, and who should not get a balance transfer credit card.
A personal loan is another option for consolidating your debt, as they typically have lower interest rates than those of credit cards.
The Bottom Line
Utilizing a bi-weekly payment schedule is a great way to minimize the credit card interest you pay.
If you have multiple cards with balances, continue paying the minimums for each card, but choose one card you want to pay off first. You can pay off either the card with the highest interest rate, which saves more money, or the card with the lowest balance and pay it off faster.
Then make your bi-weekly payments each month, making sure to pay at least your minimum payment by the due date.
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