Did you know that if you carry a monthly balance on your credit card, then the credit card company is not required to give you a grace period before they start charging interest?  In fact, the minute you swipe that card, you’re immediately charged interest on that purchase. 

To make matters worse, interest on credit cards is compounded daily, which means interest is charged on the outstanding balance (running balance PLUS daily accruing interest) EVERY DAY.  So, you’re being charged interest on the interest…I’m not kidding. No wonder your minimum payment just barely covers the interest each month, much less knocking down your balance!  

Don’t fall into this interest trap, thinking everything is fine and dandy just because you can afford the minimum payment.  It could literally take you decades to pay off a credit card if you only ever make the minimum payment – and credit card companies are just fine with that.

Here are 3 ways you can get off the minimum payment merry-go-round and get that balance paid off.  Then you can stop PAYING interest to credit card companies and start EARNING interest on money you could saving instead.

1.   You must have an emergency bank account.  You’ve got to do everything you can to stop adding to your credit card balance and when you don’t have an emergency fund, any little unexpected expense ends up on your credit card.  Flat tire? HVAC needs repair?  Medical bill?  Build up at least a $1,000 emergency fund to break this cycle.
2.   Order your credit cards from highest interest rate to lowest interest rate and put any extra money toward the highest interest rate card first.  We call this the “avalanche method” of debt paydown in financial planning circles, and mathematically it is the quickest way to get out of debt.  Throw everything you’ve got at the highest rate card until it is paid off.  Then take all of that money PLUS the minimum payment on the second highest rate card and make that your monthly payment on the second card until it is paid off.  The momentum builds and builds – until you’re debt free!
3.   Split your payment in half and pay twice. Because interest is compounded daily as I mentioned, if you take a normal $500/month payment and split it into two $250 payments two weeks apart, you’re knocking down your balance mid-month which slows the daily interest accumulation.  It’s not a magic bullet, but it sure helps.  Lowering your interest cost means more of your payment will go toward the actual balance due.  (Another sneaky trick is that if you make a payment every other week, you’ll actually make 26 payments in a year, which equals 13 monthly payments instead of 12.  You’ll make one extra payment a year and you won’t even realize it!)

• If you want to learn more about how to beat compounding interest, here’s a great article with more detailed examples:  Compounding interest on your credit card works against you and here’s how to beat it.

• Getting out from under high interest credit card debt is so important to your financial health and your mental health, that I’ve created a whole online learning course to help people break free of their debt, permanently.  Here’s a free video where I talk about the #1 thing I learned back in my broke college days, when I was trying to get out of debt myself: The #1 Thing.

"The moment you take responsibility for everything in your life is the moment you can change anything in your life." – Hal Elrod. 

-Yvonne ☺