How we paid down our debt and saved money at the same time..it can be done!
I have been reading a lot of posts at different financial websites lately about the trouble people are having paying off their credit card debt while trying to save a little extra money for themselves. First of all, anyone doing their best to pay off credit card should be commended, as we all need to be free of this “bad” debt and get ourselves some “good” debt. (For some reason that still makes me cringe, but I suppose there are good reasons to have debt, such as owning a house or going to school.) It is hard work to pay off years worth of charging up those cards, and even though it seems insurmountable, it is in fact possible to both pay off the debt and save some money at the same time.
One of the biggest concerns about getting out of debt is how to come up with that giant minimum payment due and then trying to add an extra couple dollars to that as well. You know, that dreaded white envelope that shows up once a month, that you carefully put on the desk only to be opened later when you have taken your medicine, put on safety goggles and pulled up a comfortable chair that you will not fall out of. Sometimes it might say this:
Total balance: $ A Hell Of A Lot Of Money
Minimum Payment Due: Sell your first born child then we can talk
Due Date: Yesterday
So you think to yourself…”Self, how are you going to pay this without selling a kidney when you cannot even afford gas for your car?”…and here is how:
Two words….Weekly. Payments.
Huh? They don’t send me a bill every week, you idiot, how am I supposed to pay them every week? Now, I don’t know your individual banking habits, but for us, we use online banking. It makes everything so much easier! With online banking, you can schedule a payment to your credit card every week, no problem…you don’t need to get a bill from them to pay them! If you don’t use online banking, you can still pay them every week, but you will need the payment address, your account number, and your checkbook. Just write that check out and mail it in every Friday or whatever day you decide.
As for the advice from personal finance professionals to always add a little bit extra to your payments to help you get out of debt, here is where weekly payments can help you out. If your minimum payment due is $200 every month and you find that hard to come up with once a month, you could pay $50.00 per week every Friday. That way the $200 minimum is taken care of, and you only had so suffer a $50 loss each week. What if you added $10 to that weekly payment? You would then be paying $240 to your credit card every month, but only be missing $60 every week. Make sense? Weekly payments help by:
1. Taking away the fear of that once-a-month $200 payment.
2. Help you budget more effectively, as you only need $50 per week to go out the door.
3. By padding that $50 with a little extra money, you can pay off your card faster with only a tiny bit of extra pain every week.
4. By paying weekly, your average monthly balance continuously drops, saving you money in interest every month and on the life of your repayment plan.
Lets move on to saving some money for yourself. I know it seems impossible to save any money when you owe a lot to credit cards, but this is ESSENTIAL to always do. You never know when a financial problem is going to come up that needs to be taken care of, and having a little bit of money in the bank will help soften the blow. So, for saving money, its kind of the same idea as the repayment plan. Every week, shuffle a few bucks away into a savings account or money market account, such as the one from ING DIRECT. We have 2 accounts with them and never have any problems, and their customer service is great. (If you would like a referral for a bonus $25 in your account, please contact me. You get $25, I get $10, we both win). Over time, a few bucks a week will add up to a nice emergency fund that can take care of smaller problems instead of you having to whip out that credit card you have been trying to pay off!
So in conclusion, the best way to both pay off debt and save money is to do it on a weekly basis. It hurts a lot less to split your minimum payment due into 4 payments and make them every week than it does to try to come up with that giant one time payment. Also, for savings, you wont miss a few bucks a week….even just $10 every week into a savings account would add up to over $500 over the course of a year, and that’s not even counting the interest you would be earning as well.
Whatever you do, just keep paying that debt. If there is a single goal you should strive to achieve, its seeing that credit card bill show up on that normally dreadful day, and have it read:
Total balance: $ Free And Clear
Minimum Payment Due: Nothing…take the family out to dinner and put the rest in your savings account.
Due Date: Wont you please charge something so we can charge you interest?
You may also like:
- Some Tips For Greening Your Banking Habits.
- Say It With Me – “I Don’t Need Any More Junk Mail Or Credit Card Offers.”
- Saving Money On Gas Is Not A Good Reason To Pay Extra For Hybrids
- Canceling Trash Pickup Will Remind Me Of How Much Trash We Dispose Of.
- How To Save Energy & Money In Your Kitchen.
Related Websites
Like this post? If so, please consider subscribing to my full feed RSS. Or, if you would prefer, you can subscribe by Email and have new posts sent directly to your inbox:
I absolutely love this post. Currently am paying down debt while saving each pay in an ING account.
The weekly payments is something I will try.
This is a great motivational article for someone like me. Being in college, trying to pay off the debt I have and save some money for graduation in 5 short months, this is exactly what I have been doing to achieve all of this.
This is a great concept – for great tips on how to achieve this, see “Debt Proof Living” by Mary Hunt. I am up to ears in debt and this book really changed my way of thinking – I CAN get out of debt and put money aside. Great post!
Okay, I have a stupid question, but I need it answered, so I’ll ask!
I am definitely going to pay down my credit card weekly, but how does that mean that I won’t get the statement with another minimum payment due at the end of the month?
For example – I have a Citicard and I am going to make weekly payments of about $25. My minimum due is $100 at the end of the month. So, will I be making $25 payments a week and then paying that $100 at the end of the month?
Is that something I have to sign up for?
No such thing as a stupid comment!
You will still get a statement every month, as always. And it will still have the minimum amount due, which SHOULD go down a little bit every month, as long as you dont make any more charges.
But since you have paid the minimum payments spread out over the 4 payments for the month, you wont have to pay it again.
Just make sure that whatever your minimum payment is on your statement, that your weekly payments over the course of 4 weeks add up to at least the minimum that the CC company wants you to pay. So if your statement says your min. due is $100 for the month, then make sure your weekly payments are at least $25 every week.
Also, if your minimum payment does go down the next month, to say $90, continue to pay $25 every week, so you can pay the card off faster.
Hope that helps!
Fantastic! Definitely cleared that up! I’ll let you know how it goes!
Let us know, and good luck Elizabeth!
I couldn’t agree more with your weekly payment strategy. I caught onto the daily average balance thing a while ago and if I got paid weekly I would do that. Instead I get paid twice a month so I make my payments then. Not quite the same bite as weekly but it does the trick. Instead of using my online banking though, I go directly to the credit cards web site to make the payment. Reason being, they credit the payment within one business day even though they haven’t taken it out of your account yet. A lot faster then waiting for your bank to send them something through the mail (I made that assumption based on the need for the payment address).
I also have an ING account that I’m working on building up. I do my darndest to not have to pull from it but once in a while it happens.
Amber
Twice monthly works too, anything is better than once a month! We did the every two weeks thing for a while as well, and it did make everything easier.
Good luck and thanks for the tip on paying through the CC’s website.
I am amazed that you are the first person I have seen suggest this! I am paid weekly and I have been doing this since Jan 1. It’s great! Not only does it make it easier to make the payment and save a little on interest, but it helps keep you motivated! To see that balance go down every week really makes me look forward to Friday.
A little help from an Excel worksheet with a graph and you can really chart your progress! For us, it’s one debt down and 2 to go.
Thanks for suggesting a solution that really does work!
Good luck Kim, it will be gone in no time!
I have been making twice a month payments to a card, but this idea sounds even better. One good idea is to have your envelopes ready and addressed ahead of time–with stamps. Oh…and a form letter you can just print off the computer. “Dear Capitol One: Please put the enclosed payment towards account number…” Something simple like that.
Mom2fur
What a great idea…wish I had thought of that!
This is an excellent idea. We’ve been working on paying off all our debts (it’s a long battle), and, we’ve done a lot toward that goal in the recent past. In fact, today is my day of reckoning — refiguring out what we owe and how we’ve been doing with the various changes we’ve made. We also decided to save while we pay down debt, because emergencies happen — a pipe burst in my house when we started all of this work on debt payment, and, although we lucked out for the moment, eventually, a major expense comes along that you aren’t prepared for. Thanks for the tip.
Good luck Donna…I hope your day of reckoning is not too bad!
[...] This to me seems like a no-brainer. I mean, how much would you really miss $1.85 per day? Ever since we enrolled in it, we have not missed the extra dollar or 2 every day, and its been nice to see the savings account go up without even making an effort. This program is great for people that might have trouble putting aside money every time they get paid, as I suggested in my previous post about paying down our debt and saving money. [...]
[...] What Can Be Done – I think there are several things that can be done to make sure you dont end up owing a debtor your first born child, the first of which is to try to stay out of credit card debt. You dont need a plasma tv, you dont need a 2 week vacation in Australia, you dont need a new Ipod…those are all wants. If you cannot afford to buy them with the cash you have in the bank, then you cannot afford them. Period. Concentrate spending your money on the things you need like food, heat, shelter, clothes, gasoline. Your money will go alot further when you use it for the needs in life, rather than the wants. Live somewhere you can afford, whether that is an apartment or house in whatever city you choose to live in. There is nothing wrong with living in an apartment…if nothing else, think of the money you save on insurance and repairs. If you can actually afford a house, good for you! As for cars, again, buy what you can afford. If you are having trouble paying the bills at home, you might want to consider the Honda and put down the BMW brochure. Also, another thing to keep in mind is your car’s MPG…the more miles per gallon your car gets, the less money you have to spend to keep it running! I see more people here in LA with Hummers, living in really bad areas of town, run-down houses, etc…but yet they need their $40,000 gas-guzzling SUV. And lastly, save your money. I wrote a post a while back about paying off our debt and saving money at the same time….give it a read if you are interested in doing the same thing, it worked for us, and it worked for the people who left comments at the post. You can find the post How we paid down our debt and saved money at the same time. [...]
Simple, but effective payment strategy….anything to get rid of those credit card payments…
Great Idea. I advise and counsel people on getting out of debt and help them with tax problems. This is a good Idea.
How about erasing the Credit Companies’ data banks? Or waiting for the dollar to be worthless?
You fail to mention one important detail in making weekly payments, over the course of the year you will make 13 monthly payments not 12 monthly ones.
Good point, it’s much easier to do payments right when your check comes really, so bi-weekly works well too. Or an even better solution? Stop trying to keep up with the Joneses
[...] contribute 3% of your income. The earnings grow tax free! Many people will say it is impossible to save and get out of debt at the same time. True, you divert some financial resources that could be used to pay down debt, [...]