Personal Finance and Investing

Paying off debt is one of those things on most people’s to-do list, like doing taxes or mowing the lawn, that is painlessly easy to slack off on. But unlike other responsibilities you put on the back burner, procrastinating on paying off your debt will cost you time and money—and add up to a big chunk of it.

Thanks to the CARD Act, issuers are required to disclose on your credit statement how long it would take to pay off your entire balance if you pay only the minimum. Those numbers may be a real wake-up call to how much debt you’re carrying and for how long, but still hides the worst consequence of the amount of interest you end up paying over time.

Do the math and see the kind of damage your debt is doing.

Let’s say you’re carrying $7,701* on a credit card with a typical 17% APR. If you calculate the card’s minimum payment as 3% of your balance (standard minimum payment calculation), and you only pay minimum, then you’re looking at

$231.03 a month for 18 years and 1 month until the debt is paid off in full, paying an additional $6.624.47 in interest charges.

The above calculation holds true as long as you don’t add any additional debt and charges to the outstanding balance. Let’s say you decide to add $100 to your minimum monthly payment. You’ll then be paying…

$331.03 a month for 2 years and 5 months until the debt is paid off in full, paying an additional $1.708.54 in interest charges.

Consider the difference an extra $100 makes—you pay off your debt almost 16 years sooner and save nearly $5,000 in interest. Even for a smaller debt, paying more than minimum to get rid of debt sooner will significantly save you both time and money.

If you don’t know where to find an extra $100, or even an extra $20, each month to add to your minimum payment, try simple weekly actions to save money– cutting out movie trips, magazine subscriptions, fancy meals, and taking public transportation or carpooling. A site like PiggyMojo is an excellent tool to help you stay on-track away from spending and towards your savings. You’ll be surprised how quickly these savings add up, and even more amazed how much getting rid of debt ASAP will benefit you in the long run.

The reward of saving thousands of dollars and the burden of debt lifted from your shoulders is well worth your extra debt-reducing efforts.

*the average consumer credit debt, according to CreditKarma.com.

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