Even paying an extra $10 a month has a major impact
You might be surprised at the difference $10 a month can make to your finances. If you typically make just your total minimum credit card payment, adding another $10 to each month will help you get out of debt faster. Paying more than the credit card total minimum payment will also help you save money, as you will owe less in total interest charges. Here's how it works.
The payoff from paying an extra $10
The monthly total minimum credit card payment for a Bank of America credit card is 1% of your current balance, plus interest charges and any late fees for the month. Consider this example of how increasing your monthly credit card payment to $10 above the total minimum due can save you time and money, assuming a credit card balance of $1,500 and an APR of 18%:
- Paying just the total minimum due
Total Minimum Payment: Initially $37 per month
Time it will take to get rid of debt: 160 months
Total interest charge during payback period: $1,792.52 - Paying $10 more than the total minimum due1
Monthly Payment: $47 (initial $37 due plus $10 extra)
Time it will take to get rid of debt: 44 months
Total interest charge during payback period: $555.76 - The potential savings
By paying $10 more than the total minimum payment, and keeping up that fixed payment amount until the debt is fully repaid, you will save $1,236.76 in interest payments and pay off your debt 116 months sooner—that's almost 10 years.
Managing Credit Tip #23
Your Bank of America credit card statement now includes information that shows the time and total interest cost if you make just the minimum payment due each month.
How to find money to pay more than your credit card total minimum payment:
- Focus on budgeting. Look for expenses you can trim. Reduce two monthly expenses by $5 and you’ve just found $10 to add to your credit card payment. Use this spending calculator to understand your current spending habits and create a budget plan for reducing your spending.
- Get qualified credit counseling help. The National Foundation for Credit Counseling (http://www.nfcc.org) can put you in touch with an accredited counselor who is able to give you budgeting advice and devise a plan to help you get out of debt.
- Lower your debt-to-income ratio. By reducing your credit card debt, your overall debt-to-income ratio will improve, a sign to lenders that you are able to afford your current level of debt. Keeping your debt load manageable can help you to qualify for better credit card interest rates, and other loan rates.
- Help to protect your credit score. Getting out of debt may help you to improve your credit score. As you lower your debt owed, your credit utilization rate will improve; that’s one of the factors that determines your credit score.
If you understand how paying even a little more than the total minimum credit card payment could save you a lot of time and money, it can help motivate you to increase your payments. And the reward will be the satisfaction you get from retiring your credit card debt that much faster. To find out for yourself how much you can save by paying more than the total minimum, try our credit card payment calculator.
What's next? Four strategies to pay off credit card debt faster
1This example is for illustrative purposes only, based on the assumptions described here:
• Monthly payment is $10 more than initial $37 total minimum payment due and remains at that fixed payment throughout payback period.
• No new additional debt is added to starting balance.
If your account has different terms, the example might work differently for your account.
