Small Payments Can Cut Credit Card Debt - TheStreet

Small Payments Can Cut Credit Card Debt

'Micropayments' can help you pay off your credit card debt faster.
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NEW YORK (TheStreet) -- Paying down debt is similar to losing weight -- we know it's good for us, but it's hard to find a program we can stick to and accomplish our goal.

Both challenges may have the same solution: smaller portions more often. For credit card debt, this means making smaller payments throughout the month instead of one large payment at the end of the month. These are referred to as "micropayments."

While we are conditioned to pay our credit cards once a month, consumers can make payments more often. Some banks and issuers allow payments to be made as often as once a day.

Why does increasing the number of payments make a difference? Micropayments can have a significant impact on the amount of interest you pay.

If you carry a balance, credit card companies charge daily interest. Make your payment at the end of the billing period, and you will pay interest on the full balance for that entire billing period. Pay more often and you reduce your balance and the amount of interest you pay each month.

One easy strategy is to divide your monthly bill in half and pay that amount every two weeks. By the end of the year, you will have made 26 payments or the equivalent of 13 monthly payments. The extra monthly payment resulting from this payment plan will enable you to pay down your debt at a faster pace.

To make sure you stay on your schedule and don't miss a payment, sign up to have your funds withdrawn electronically every two weeks. You should also call your credit card company and verify that you can make separate payments and have it credited to your monthly minimum.

There are several other advantages to making micropayments:

  • You can control your payments better. If you are paid weekly or biweekly, money can slip away by the end of the month, and it's sometimes difficult to pull together enough for the minimum payment. Schedule your payments to be sent on specific days after you're paid. Four $50 payments or two $100 payments are sometimes easier to make than a monthly $200 payment. It is also easier to add a little extra money to smaller payments.
  • The higher your interest rate, the more you will save. This is good news for the many cardholders who have recently received rate increases and now pay up to 30%.
  • Micropayments can help raise your credit score. An organized, scheduled payment plan can help you avoid late payments and pay more than the minimum due. Both of these are important elements for a good credit score.
  • Micropayments can reduce financial stress. Making payments right after payday at a time when you actually have the money reduces anxiety and financial stress. The ability to save money and pay down debt can also make the debt burden a little less overwhelming.

The main drawback to the micropayment plan is that it takes time, organization and financial discipline to make the plan work and this may be difficult for some people.

If you have more than one credit card with a balance, keep paying the minimums for each card, but pick one card and pay it off first. Select either the card with the highest interest rate (save more money) or the card the lowest balance (pay it off faster). Stop charging on that card and use another card for purchases. Make your minimum payment by the due date.

Ask your credit card issuer how often you can make a payment and if they have any restrictions or limitations. Some issuers have no limitations. Others might only allow payments every third day. It can take as long as two to five business days for the payment to appear on your online credit card statement.

-- Reported by Bill Hardekopf of

Bill Hardekopf is the chief executive officer of

, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."