By Terry Rigg

tre2000[at]midwest.net
http://www.homemoneyhelp.com

Are you trapped into making only minimum payments on your credit cards? I hope not.

Minimum payments decline as the balance on the credit card declines. 

Let's take a credit card with a $2000 balance at 15% interest to use as an example. You would expect to pay about a $40 (2%) monthly payment when you start making your payments:

By making the minimum payment only, it will take you 13 years and 11 months to pay off your credit card and you would expect to pay $2,126 in interest.

However, if you continued paying that $40 until the credit card was paid off, it would only take you 6 years and 6 months to pay off the credit card and you would pay about $1,100 in interest.

You could save over $1,000 in interest and pay it off in half the time. This is what simply starting with a set payment and sticking to it could save. If you can afford that $40 payment when you start, odds are it won't hurt you later.

Now, let's take that a step further. What if you paid just $10 more, $50 instead of $40?

That same credit card could be paid off in 4 years and 7 months with only $740 in interest.

Here is how it breaks down:

Minimum Payments - $4126 total payments - 13 years 11 months Paying $40 per month - $3100 total payments - 6 years 6 months Paying $50 per month - $2740 total payments - 4 years 7 months

The fact is that every dollar you add to your payment goes toward the balance of the credit card.

I recently completed a Debt Elimination Summary for a couple that had $46,500 in credit card debt on 6 credit cards. Most people would be considering filing bankruptcy in that situation but this couple were determined to pay it off.

Here are the results of the Summary:

They were already paying $785 per month on the credit cards. They decided they could afford to pay another $200 to eliminate their debt sooner.

Minimum Payments - The credit cards would never be paid off. Paying $785 per month - $78,761 total payments - 8 years 5 months Paying $985 per month - $66,059 total payments - 5 years 8 months

Would you have thought that you could pay off over $46,000 in credit card debt in just 5 years and 8 months? I've seen this done dozens of times. It can and it does work if you stick to it and quit using your credit cards.

If you have multiple credit cards and would like to pay them off as quickly as possible the best way to do this is to write down your credit card name, balance, interest rate and minimum monthly payment.

Then you must decide which credit card to pay off first. There are two schools of thought on this. Most experts believe that you should pay off your highest interest credit card first. You would definitely pay less in the long run.

However, if you need to see results quick to give you an incentive to keep going you could start with the credit card with the lowest balance.

Which ever way you choose, simply add as much money as you can spare to that credit card until it is paid off. Then take the amount you were paying to the first credit card and add it to the next credit card payment and so on until they are all paid in full.

Interest, late fees and penalties are wasted money. The only way to avoid this is to use cash to make your purchases when ever you can.

Terry Rigg is the author of Living Within Your Means - The Easy Way http://www.homemoneyhelp.com/ebookadpage3.html and editor of the Budget Stretcher web site. To Subscribe to The FREE Budget Stretcher Newsletter and receive The Complete Budget and Bill Organizer absolutely free just visit his home page at http://www.homemoneyhelp.com

Published - November 2005