Bi-Weekly Credit Card Payments Can Save $1000's in Interest Charges
Here's a little known tactic for getting out of credit card debt: Send in bi-weekly payments.
Say
you owe $5,000 on a credit card with a 17% interest rate and 3% minimum
payment. If you only send in the minimum amount every month, by the
time you've paid off that $5,000, your interest bite would be $4,119.
Your $9,119 total tab would be paid off in a mere 14 years!
This
month, you'd have to send in $150. Pay it in advance of the due date,
and start pinching your pennies. Believe it or not, if you get in $75
-- half of that $150 -- every fourteen days from then on, you'd cut
your interest bill by $2,521. And you'd be debt free in 3 years and 18
weeks, not 14 years!
Think about it ... a half payment every two
weeks will result in 26 payments a year, since there are 52 weeks in a
year. But that's the equivalent of 13 monthly payments, not 12. The entire extra month's worth of payments will go toward paying off your outstanding balance.
I'm sure you're wondering, will the bank that issues your MasterCard or Visa actually credit the payments every two weeks? Yes!
Card issuers are required by law to credit payments when they're
received. Unfortunately, that's not the case for mortgage payments,
where it's perfectly fine for lenders to only credit payments on home
loans once a month, no matter what's sent in, when. (I know, the rules
"is" nuts!)
Here's How to Use the System to Your Advantage
 To
save the most, pick the credit card bill that carries the highest
interest rate, and for heaven's sake, stop charging on that card!
Make
certain you get this month's minimum in by the due date - I recommend
you mail it in at least 10 business days before that date, to make sure
there are no mail-related snafus and that you start off on the right
foot. Better yet, pay your bill online and your payment will typically
get posted within 2 business days.
From then on, send in half
that amount every 14 days. As for those statements, don't let the due
date and minimum payments on them sidetrack you. (But do verify that
there are no unexplained charges or fees.) Just be sure to make your payments like clockwork, so they arrive at the lender every two weeks.
You
can ask your card's customer service rep if there's anything you should
know about making your bi-weekly payments, but don't be surprised if
the rep has never heard of this idea before. If that's the case, you
might want to ask for tips to speed up the crediting of your payments.
For
example, some card issuers advise that you put your account number on
the checks. (I'd rather not have this information floating along as the
checks are processed, but the companies say it's necessary if you want
your payment credited asap.)
Afraid You'll Forget?
 Ask
the card issuer if you can authorize electronic transfers every 14
days. Some companies provide this service for free, while others charge
a fee (skip it!), and then there are some that won't help at all.
Also
consider the electronic bill paying service where you bank. If the bank
doesn't charge for the privilege, and will automatically transfer the
funds every 14 days, it's a perfectly reasonable way to go.
Warning: Dollar for dollar, this system will save you the most, but you must
follow these instructions exactly, or you'll end up with late fees,
exorbitant interest rates and a 7-year blemish on your credit report.
You'll
have the most success with this plan if you're the type of person who
balances your checkbook every month, and even your kitchen junk drawer
looks neat. (How I envy you!)
About the Author:
Nancy Castleman has spent 20+ years helping people get out of debt, save
money, and live better on less. Along with her partner, Marc Eisenson,
Nancy is known for her work on mortgage pre-payment, and for first
explaining "credit card math" in her often acclaimed free e-letter, The Pocket Change Investor.
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