Paying Down Credit Card Debt, $1 at a Time

The average American household has more than $8,000 in credit card debt. Making the minimum payment of around $230 on that debt each month would mean you could end up spending over 13 years paying down that debt. Of course that doesn’t take into account the nearly $3,000 in interest charges you will rack up as you pay the debt down either.

Having a huge credit card debt can be a burden on any family. It takes away from income that could go towards other purposes, such as saving for your children’s education or building a retirement portfolio. In this article we’ll introduce you to what we call the $1 concept and help you learn how to sit aside an extra $1 a day can help pay down credit card debt and set you free.

In today’s economy a dollar sure doesn’t buy much. You might be able to buy two cans of soda or a candy bar and have some change left. However, we have something that is far healthier (at least for your financial health) that we want you to do for the next 30-60 days. Every morning we want you to take $1 out of your wallet or purse and put it in a special envelope. At the end of the month deposit that $30 into your bank account and send that extra $29-$31 to your credit card company in addition to your regular monthly payment.

Now you are probably thinking to yourself how in the world is that little bit of money ever going to make a dent in your credit card debt? It’s called compound interest and while it works great for you when saving money in investment accounts or other savings instruments it works against you when it comes to paying off credit cards and other loans. Interest is computed on the entire balance daily. Now granted that most credit cards give you a 30-day grace period to pay off new debt, but when you already have debt on the card this point becomes mute.

Using the $1 a day method you are helping reduce your balance by a small amount each month. Every month your balance will start to decrease – a little at a time at first – and the amount of interest will start to decrease – a little at a time – as you begin to make extra payments to help reduce the extra debt.

Still don’t believe me? Let’s go back to that $8,000 in debt you have and do some recalculations. At 9.9% interest making your minimum monthly payment of $230 plus an extra $30 a month for a total payment of $260 will mean that you pay off that debt in 3 years. Yes, you read right – 3 years. Your total interest payments will be $1,178.65 for a total interest savings of almost $2,000. Just imagine, paying off your debt in 3 years versus 13 just by putting aside $1 a day!

Now that you are excited and reaching for your wallet I want you to do something else after you have tried this for about 2 months. I want you to take your lunch to work one day a week or stay home instead of going to the movies and have quality family time or read a good book. Take the average $10 you will save for that week and add it to the $30. Now you will be sending an extra $40 a month on your credit card payment. Can you see where we are going here? With every extra dollar you send each month you end up paying off your credit card debt faster and faster.

Credit card debt doesn’t have to be a monkey on your back. By just altering your lifestyle – by as little as $1 a day – you can beat the system and be living debt free in no time. Try it for a few months and then compare your statement before you started and then one at the end of the trial period. I think the numbers will speak for themselves.