Big credit card bill too much to handle? Try multiple monthly payments. It can whittle debt faster and align billing with paycheck
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Cut your credit card debt using micropayments
By Erin Peterson
Highlights from this Credit Card Help story
- Micropayments can more closely align payments and paychecks.
- They can help you pay down debt more quickly.
- They can help you take advantage of windfalls.
- They can help you build good payment habits and a real sense of accomplishment.
- Micropayments could improve your credit score.
More inside Credit Card Help
Many people get into credit card debt not because of a single big purchase, but because of many smaller ones. Whether it’s too many restaurant meals or too many extra purchases tossed into the shopping cart each week, small amounts quickly add up.
If you’re smart, you can use that same principle to work for you, not against you. Instead of making a single credit card payment each month, you can spread the bill out over several smaller (and less painful) payments.
Multiple payment advantages
Multiple payments can:
- More closely align paychecks and payments.
Paid every week? Make a small payment every week instead of one big one each month. You’ll even out your monthly cash flow.
- Pay down credit card debt more quickly, in the same way a biweekly mortgage works.With biweekly mortgages, homeowners pay half their monthly mortgage amount, but they pay it every two weeks. With 52 weeks in a year, that means 26 half payments — or 13 monthly payments instead of 12.On a mortgage, biweekly payments can shave about seven years off a 30-year mortgage. The same principle would work if you divided your monthly payment in two and then paid that amount every two weeks.
- Take advantage of windfalls.
Once you get in the habit of paying multiple times, credit card payments will come to mind if any windfalls come to your wallet.
- Build good payment habits and increase satisfaction.
Seeing your balance fall day by day keeps you focused on the task of climbing out of debt and builds a sense of accomplishment.
- Potentially improve your credit score.
Credit card issuers typically report your outstanding balance to the credit bureaus monthly. Even if you pay your balance off monthly, if you pay on the 15th and the card issuer reports on the 1st, you may be shown as carrying a balance at the moment the issuer reports. Micropayments cut the odds you’ll have a big balance showing when the issuer takes your “credit snapshot.”
Melissa Gullickson has paid off three of her five credit cards in the past year by paying at least the minimum payment twice a month. She times the payments with her paychecks and makes additional payments when she gets a windfall, like this year’s stimulus check.
Gullickson says the double (and triple) payments help her even out her cash flow and give her a real sense of headway. “Paying twice the minimum really helps make actual progress on the balance,” she says. “Just paying $50 a month on a $2,000 [debt] gets you nowhere.”
Some people get even more ambitious about frequent payments, putting a few dollars toward their debt every few days. The tactic offers immediate gratification for those who need more incentive to dig out of debt. If you resist buying the latest DVD or pair of shoes while you’re at the mall, you can put the money you saved toward your debt the same day.
While the major credit card issuers are all fairly flexible about making such payments, check the chart below before you consider this tactic to tackle your debt. Several companies limit the number of online payments you can make each month.
|Name of issuer||Allows multiple monthly online payments?||Limitations, terms and conditions|
|American Express||Yes||Online payments can be made once every 24 hours.|
|Bank of America||Yes||No limitations. There are no fees for Web payments, regardless of how many payments are made each month|
|Capital One||Yes||Customers can make one online payment per day for each credit card account, and customers can have one online pending (not-yet-processed) payment per credit card at any given time.|
|Citi||Yes||Customers can make an unlimited number of payments, but the maximum payment can’t exceed $10,000 (or $50,000 for Citigold customers).|
|Discover||Yes||Payments can be made every three days.|
|HSBC Bank||Yes||No limitations; however, users cannot make two payments of the same amount on the same day, to prevent duplications.Can’t preschedule payments more than a year in advance.|
|JP Morgan Chase||Yes||No two online payments can be within three days of each other.|
|US Bancorp||Yes||No limitations. There are no fees for Web payments, regardless of how many payments are made each month.|
|Wells Fargo||Yes||No limitations. There are no fees for Web payments, regardless of how many payments are made each month (there are limits, however, if the payment is made by transferring money from another Wells Fargo account).|
Data gathered in August 2009. To report an error or an update, email Editors@CreditCards.com.