Pay More Than Minimum To Manage Debt Successfully

Thursday, October 25, 2012, 2:00 AM | 1 Comment

For quite some time now, we have been bombarded with advertisements by debt management firms seemingly shouting at the top of their lungs to solve your debt problems especially if the debt you owe is more than $10,000.

That’s how they get more commission and they consider it worth their while when such heavily in debt folks ask them to tackle their debt and help them breathe easily – financially so to speak.

Try hard not to mess up your financial life…

Using credit cards to purchase what you need (and not what you want) is one of the best financial tools available to humans in modern finances. However, you have to play by the rules.

If you are heavily in debt to the tune of $10,000 or more, then paying more than the minimum will reduce your debt quite nicely and you won’t have to seek the help of debt management companies.

Luckily, some websites have developed calculators with which you can figure out how much time it would take to pay off your existing debt if you don’t accrue any more debt.

Let’s go through some solid exercises… has a calculator for you to try out different scenarios to get rid of debt completely.

Let’s follow the amount in the TV advertisement. Let’s assume you have $10,000 in debt and you want to figure out how long it would take you to pay off the debt completely.

Click on the calculator link and fill out the spaces for $10,000. Let’s assume your interest rate is 15%. We will assume that the monthly minimum is calculated as interest plus 1% of the balance. Ask your credit card issuer what their formula is.

  • Paying just the monthly minimum…

    The calculator figures the minimum for $10,000 is $220 at 15%. If you start paying the minimum by selecting the Minimum payment, it will take you 335 months (almost 28 years) to pay off the debt.

    You will have paid a total of almost $12,000 ($11,979.29) in interest.

  • Pay more than the minimum…

    Now, enter $250 ($230 + $20) for fixed payment you make each month and select the Fixed payment option. The calculator shows it will take you 56 months to be rid of your debt.

    In that time, you will pay less than $4,000 ($3,949.66) in interest.

    So by paying more than the minimum and adding $30 to the minimum, you will pay off the debt completely in a little over 4 1/2 years with a total interest of less than $4,000.

  • Savings in money and time…

    You will pay off the debt quicker (over 23 years (28 – 4.6)) and save a little over $8,000 ($11,979.29 – $3,949.66) in total interest.

You must follow 2 rules…

Two rules you must follow, at the least, to succeed in managing your debt:

  1. During the pay off period, you don’t accrue more debt.

  2. You must adhere to paying the same fixed amount every month. You have to be consistent in your spending behavior and have complete determination in your heart of hearts to pay off the debt.

The best is yet to come…

The best way to not accumulate debt is to charge on credit cards only what you can afford to pay in full each month and before the due date.

Follow your financial needs instead of your wants and wishes. That’s the best advice anyone can give you.

In a Nutshell
If you can pay fixed amount above and beyond the minimum, you will save big in interest and will pay off the debt a lot faster.

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  2. Nov 5, 2012: Amedar Consulting Group

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