Debt repayment is a slow process because of the compounding interest. The compounding interest works against you when you are trying to pay off your credit cards.
For example, between April 17th to today’s date, I paid $434 in debt repayment BUT only $343.37 went towards the principal debt, the rest $90.63 I paid towards interest.
My monthly minimum payment for credit card/LOC is $201. But I am throwing extra money towards my debt so that I can lower the balance, thereby, lowering the amount that the creditors can charge me in interest.
Another example is my Cap1 Visa credit card, this month, my minimum pament was $106. In April, my minimum payment was $119 and Cap1 charged me $44 and change in interest. By Friday, when I get paid again, I will have paid $256 for the month of May.
For Cap1 Visa, I paid the minimum payment of $116 on May 1st, although I had already paid more than the minimum (paid $256) on April 17th BUT a new statement had cut on April 20th, Cap1 showed online that no payment was due for May 2, 2009, I went ahead and paid the minimum of $116. Every time, I get paid, I throw money at Cap1, regardless if the money is due or not b/c I want to reduce the balance. My goal is to reduce my Cap1 Visa balance to $2800 by December 09. My current Cap1 Visa is $3,521.15. So, using a payment of $200/month as my guide, I will pay over the next 6 months $1200 which should put my balance around $2321.15. My goal is $2800 by end-of-year but I left myself a little cushion so that if I cannot make an extra payment here or there, I will still at least make my goal of $2800. If do hit the $2321.15 mark, it will be even better for me financially.
It’s all about saving money and building up the Benjamins!