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Here's a little known tactic for getting out of credit card debt: Send in bi-weekly payments.
Say you owe $5,000 on a credit card with a 17% interest rate and 3% minimum payment. If you only send in the minimum amount every month, by the time you've paid off that $5,000, your interest bite would be $4,119. Your $9,119 total tab would be paid off in a mere 14 years!
This month, you'd have to send in $150. Pay it in advance of the due date, and start pinching your pennies. Believe it or not, if you get in $75 -- half of that $150 -- every fourteen days from then on, you'd cut your interest bill by $2,521. And you'd be debt free in 3 years and 18 weeks, not 14 years!
Think about it ... a half payment every two weeks will result in 26 payments a year, since there are 52 weeks in a year. But that's the equivalent of 13 monthly payments, not 12. The entire extra month's worth of payments will go toward paying off your outstanding balance.
I'm sure you're wondering, will the bank that issues your MasterCard or Visa actually credit the payments every two weeks? Yes! Card issuers are required by law to credit payments when they're received. Unfortunately, that's not the case for mortgage payments, where it's perfectly fine for lenders to only credit payments on home loans once a month, no matter what's sent in, when. (I know, the rules "is" nuts!)
Here's How to Use the System to Your Advantage
To save the most, pick the credit card bill that carries the highest interest rate, and for heaven's sake, stop charging on that card!
Make certain you get this month's minimum in by the due date - I recommend you mail it in at least 10 business days before that date, to make sure there are no mail-related snafus and that you start off on the right foot. Better yet, pay your bill online and your payment will typically get posted within 2 business days.
From then on, send in half that amount every 14 days. As for those statements, don't let the due date and minimum payments on them sidetrack you. (But do verify that there are no unexplained charges or fees.) Just be sure to make your payments like clockwork, so they arrive at the lender every two weeks.
You can ask your card's customer service rep if there's anything you should know about making your bi-weekly payments, but don't be surprised if the rep has never heard of this idea before. If that's the case, you might want to ask for tips to speed up the crediting of your payments.
For example, some card issuers advise that you put your account number on the checks. (I'd rather not have this information floating along as the checks are processed, but the companies say it's necessary if you want your payment credited asap.)
Afraid You'll Forget?
Ask the card issuer if you can authorize electronic transfers every 14 days. Some companies provide this service for free, while others charge a fee (skip it!), and then there are some that won't help at all.
Also consider the electronic bill paying service where you bank. If the bank doesn't charge for the privilege, and will automatically transfer the funds every 14 days, it's a perfectly reasonable way to go.
Warning: Dollar for dollar, this system will save you the most, but you must follow these instructions exactly, or you'll end up with late fees, exorbitant interest rates and a 7-year blemish on your credit report.
You'll have the most success with this plan if you're the type of person who balances your checkbook every month, and even your kitchen junk drawer looks neat. (How I envy you!)
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