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Sending in bi-weekly payments to your credit cards is a little-known way to save money and get out of debt for good. Here’s how it works.
How to Make Bi-Weekly Payments
Assume you have $5,000 on a credit card with an interest rate of 17%. If you only pay the minimum each month, you will end up taking 14 years to pay off your debt – and pay $4,119 in interest.
On the other hand, you can use the bi-weekly payment method. To start simply send it your $150 minimum due before the due date. Then scrounge up some extra money for a second payment.
If you can make another payment of $75 every two weeks, you will end up paying your debt in only 3 years. This will cut the interest payments to a total of $2,521. And you will save a total of $1,598 of credit card interest payment. This is 39% less than the interest cost of just making the minimum payment.
Why it Works
The way this works is fairly simple. Each half payment every two weeks winds up with 26 payments a year. That means you’re paying the equivalent of 13 monthly payments instead of 12.
Basically, the entire extra month will go to pay off the balance, not interest.
The bi-weekly payment method is easy to implement because you’re paying exactly the same amount of money, just spreading it out.
Your credit card companies are also required to accept your payments whenever they receive them and credit them properly, so you don’t have to worry about your credit card company not giving you the benefit of bi-weekly payments.
Start with High Interest Cards First
The system works best if you start with your highest interest credit card. Make sure your first, full payment posts well before the due date. If you can, pay online to ensure a timely payment.
After that, all you need to do is send in a half payment every 14 days. And as long as your statements don’t show any fees you can’t account for, ignore your statements.
As long as your payments arrive on time every 14 days to your card issuer, you’re using the system flawlessly. You will cut the time you’ll need to repay your debt tremendously – and save a ton of money on credit card interest payments.
A great way to ensure your payments go out every 14 days is to sign up for an electronic transfer with your bank or credit card company. This will automatically take out the required half-payment every 2 weeks and send it as a payment to your credit card account.
Credit Shout is a community of personal finance experts dedicated to helping you save money and make smart financial decisions. Learn how to master your credit card rewards, improve your credit score and start eliminating your debt.