Minimize Your Debt: When Less Is More

A $2,000 balance on your MasterCard - how did that happen? (Oh yes, dinner at Chez Fifi, new tires, school clothes for the kids…) Thankfully the minimum payment is only $38. You can afford that!

Before you write that check, consider this: If you make only the requested payments on that debt, your toddler will be entering high school before the balance is zero. Here's how it works: Most creditors require two to three percent of an outstanding balance as the monthly minimum payment. For $2,000, the average would be $50. As the balance declines, so does the requested payment. With an annual percentage rate of 14.4 (the current average according to the marketing research group, it would take almost thirteen years to repay, with an ultimate payout of a whopping $3,517.

You can avoid wasting precious time and money by disregarding the requested payment on your statement and using the "consistent payment method" instead. The process is simple and efficient:

1. Determine a realistic and fixed amount you can pay each month
2. Declare a moratorium on using the card until the balance is repaid
3. Pay more when you can - but never go under your preset amount

How much can this method possibly save you? Plenty. If you can manage $65 every month, you will repay the debt in 3.25 years, with a final payout of $2,535. Increase the payment to $85 and the payoff time plummets to 2.3 years, and $2,380. (You can use any online financial calculator for easy computations) Expedite the process even further by lowering the interest rate. Ask your creditor for a reduction when you have made several larger than average consistent payments.

Now you can celebrate your savings with a nice soufflé at Chez Fifi. Bon Appetit!