If you are making minimum payments on your debt, consider increasing your payment by just $5 per day. Why $5 – because we can all find $5, if we look hard enough. Cutting out the daily Starbucks latte and biscotti or bringing lunch to work can save around $5 per day. And if we realize what an additional $5 per day can do, it will be worth it to look.
Here’s how much impact $5 a day (~$150/month) can have on debt reduction.
$5000 of Debt
At an interest rate of 15%, it would take 6 years and 7 months to pay off the loan with a 2% minimum payment of $100/month. Add $5 a day to the monthly payment and it pays off in 1 year and 10 months.
Time reduced: 4 years 9 months. Interest avoided: $2106.
At an interest rate of 24%, it would take 45 years to pay off the loan with a 2% minimum payment of $100/month. Add $5 a day to the monthly payment and it pays off in 2 years and 2 months.
Time reduced: 42 years and 10 months. Interest avoided: $47,552.
$25000 of Debt
At an interest rate of 15%, it would take 6 years and 7 months to pay off the loan with a 2% minimum payment of $500/month. Add $5 a day to the monthly payment and it pays off in 4 years and 5 months.
Time reduced: 2 years and 2 months. Interest avoided: $5,177.
At an interest rate of 24%, it would take 45 years to pay off the loan with a 2% minimum payment of $500/month. Add $5 a day to the monthly payment and it pays off in 6 years and 2 months.
Time reduced: 38 years and 10 months. Interest avoided: $221,965.
While I knew paying more than the minimum would significantly reduce the repayment time and interest paid, I was amazed at the amounts. Now I know why credit card companies are happy with people who regularly pay the minimum.
This is not financial or debt reduction advice. Please consult a professional advisor.
Copyright © 2006 Achievement Catalyst, LLC
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5 comments:
I really like this concept. I think I will incorporate it in reducing my visa bill! I don't think I will miss the money I would have spent at the 7-11 by my place of employment.
Thanks
Great post. I however like keeping my debt on 0% apr credit cards and letting my money accumulate interest. Then when it's time I pay off the full amount.
Lisa,
Good luck on getting your Visa bill to zero faster.
Wilks,
Your approach makes sense while your interest is 0%. If you are paying zero interest, there is no interest savings for paying off the debt earlier:-)
Great idea. Small item, but your math is incorrect (I think) in your first example: $5,000 could not be paid off in 1 year and 10 months at $105 per month. More like nearly 4 years (5,000 divided by 105 is 47.6 months without interst).
Anonymous,
Thanks for your comment. We are both correct:-) It doesn't work at $105 per month. The post was recommending $5 more per day, which is about $250 per month and should pay off in 1 year and 10 months.
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