Personal Finance Advice

Making extra payments on credit cards and loans can make a big difference in the amount of interest you pay as well as how long it takes you to get the debt paid off.  You have probably already heard financial experts advise that unexpected windfalls should be used to make extra payments on debt, but what about making extra payments on a regular basis in order to save you money in the long run?

You don’t have to put huge extra payments toward your debt in order to be effective, especially if the debt is amortized over a long period of time.  You also don’t have to pay a company to set up a split payment method that will save you money in interest charges because you can set these up yourself as long as your lender will accept payments this way from you directly.

Here are a couple of points to keep in mind when making extra payments:

Pay attention to your due date.  Sometimes people get so carried away with throwing extra money toward their bills that they sometimes forget about the actual minimum payment due.  For example, if you make the decision to put an extra $20 every week toward your credit card bill, but the payment due is far more than that, you will still need to send in your payment before the due date.  Your payment due will be less, but it’s still due nonetheless.

Apply the extra toward the principal balance.  Sometimes with installment loans like car loans and mortgages you may find that any extra payments sent to the lender don’t get applied as you want them to.  Specify that the extra payment is a “Principal Payment” and then make sure that the payment is applied this way.  If you just let the lender choose how to apply the extra payment it might wind up as an extra interest payment, and this isn’t nearly as effective in getting your balance paid off.

If you consistently make extra payments - or even if you split your payments into two payments instead of one - you’re going to save money.  It can take some extra effort, especially if you’re splitting your payments in an effort to pay less interest charges, but you have to make sure that you stay on top of the payments to make sure you don’t miss a due date.  Missing a due date can result in you paying costly late fees and a potential interest rate hike that can make any savings you received from extra payments look miniscule.