How to cut credit card interest costs

Paying just a little more than your credit card's monthly minimum payment makes a big difference.

Let's take a look at Tom and Sarah to see just how big. Tom and Sarah both charge super-sleek, razor-thin laptops on the same day for $2,000. Tom and Sarah are both very cool cats. So, each has a beginning balance of $2,000. If you think of debt as a pile of dirt that has to be shoveled away, Tom and Sarah are starting out with equal piles. Both Tom and Sarah's credit cards charge 18% annual interest -- and require a typical minimum payment of the interest, plus 1% of the principal. Tom only pays the minimum -- which means he's keeping ahead of interest charges, but not by much. Sarah, though, is a go-getter. She pays an additional $10 each month. It's like having a helper digging alongside her.

So, Sarah's progress is quicker. How much quicker? By only making minimum payments it will take 131 payments -- almost 11 years -- for Tom to pay off his balance. Tom's interest charges will add up to $2,039 -- more than the computer itself. Sarah, however, will cut her interest payments and time in debt almost in half. She'll be in the clear after six and a half years and pay only $1,213 in interest. By paying just $10 extra each month, Sarah saves $826 in interest charges and is done making payments 4.4 years earlier. So, Sarah can chill…while Tom's still digging.

Want to see how minimum payments make your pile of debt stick around? Go to

See related: Video: How payment history affects your credit scoreVideo: What are credit card grace periods?

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Updated: 11-12-2018