Wednesday Welcome: Using Micropayments to Pay Down Credit Card Debt - Jean Chatzky - Making money make sense
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Wednesday Welcome: Using Micropayments to Pay Down Credit Card Debt

This week we bring you a second guest post from Bill Hardekopf, the CEO of LowCards.com. Last time he was here, he shared some little-known credit card perks, and today he’s helping you pay down your debt with micropayments. What exactly are micropayments? Read on.

Bill_Hardekopf (color)Summer vacations are just around the corner, and consumers need to have their credit card balances as low as possible in order to avoid costly interest charges. One way to do this is to make micropayments on their credit card bill.

Most consumers pay their credit card bill once a month, but cardholders can actually make a number of smaller payments throughout the month. Some banks and issuers allow payments to be made as often as once a day.

If you carry any balance from one month to the next, micropayments can reduce the interest because most credit card companies charge interest based on your average daily balance during that particular month. If you pay more often, you reduce your average daily balance and, as a result, the interest you pay that month.
Rather than eating out or splurging on something that you don’t really need, immediately apply that money to pay down your credit card balance. Instead of paying a certain amount once a month, divide that payment in half and pay that amount every two weeks. Consumers can even sign up for an electronic transfer of funds to take place 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.

If you want to make micropayments, call your credit card company to verify that separate payments can be made and will be credited to your monthly minimum. Determine if your issuer has any limitations on making additional payments.

If you have more than one card with a balance, keep paying the minimums for each card, but pick one card to pay off first. Select the card with the highest interest rate so you eliminate that debt as quickly as possible. Stop charging on that card, using another card for any purchases.

There are several other advantages to making micropayments when paying down credit card debt:

A disadvantage of micropayments is that it takes organization and financial discipline to make the plan work, and this may be difficult for some people.

About Bill: Bill Hardekopf is the CEO of LowCards.com and has been involved in finance for over 12 years, with frequent contributions to Forbes, The Street and The Christian Science Monitor.

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