To pay off credit card balances early or to not pay off credit card balances early is certainly not a question that Shakespeare may have asked. It is a question every Australian should ask. Does it make sense to pay off your credit card balance faster than the minimum payments established by the credit card company? Yes. Absolutely.
Credit card companies make their money based on how long you keep your balances open. The longer you keep open your balances the more money you pay and the more money the credit card company makes.
Minimum Payments
Minimum payments should be viewed as the very least you should pay. Most consumers view the minimum payment as the specific amount they should pay. This is not the mindset you want to be in. You should do your best to pay as much above the minimum payment as you can afford to pay. In fact, if you can pay off your entire balance you may want to do so.
Minimum payments may or may not cover the interest accruing on your account. This means it is possible that you can be making your minimum monthly payments on time but your debt remains the same or even goes up.
At the very least make sure your minimum payment is covering the interest that is accruing on your overall balance.
Eye Popping Calculators
Using an online calculator to see just how much you will be paying back over time on your credit cards could prove to be an eye opening experience. In fact, your eyes may pop right out of your head so be careful when you use them.
The calculators are a good resource. They will show you in real numbers how much money you save in the long run if you make higher payments each month.
Obviously, you are only able to make payments based on your income. It is a good idea to try to set a budget that allows you to cover your necessary expenses while at the same time maximizing the amount you pay each month. The more you can budget to pay back your debts the more money you will save in the long run.
Shifting Balances
Another way to save some money is to shift balances from high interest credit cards to lower interest credit cards. This is not truly paying off your debt in advance but it is replacing high interest debt with lower interest debt.
Another way to accomplish paying high interest debt faster and replacing it with lower interest debt is through a debt consolidation loan. These loans are usually against the equity in your home and allow you to pay off all of your high interest debts and make one payment each month on the lower interest home equity loan.
The bottom line is you should pay off your highest interest debts as quickly as possible. The faster you can pay off these debts the more money you will save in the long run.
