Does Paying a Little Extra On Your Credit Cards Really Make a Difference in Debt Payoff?

If you are working on paying down debt and can only afford to pay a little bit extra to your card, is it worth it?

If you are working on repaying your credit cards, you have probably heard that it is important to pay more than the minimum amount due. But, what if you don't have a lot of spare cash to devote toward becoming debt free? If you can only pay a little bit extra a month, will it really help you?

The answer to this question is likely to surprise you -- in a good way.

Even a small extra payment can make a big impact

If you don't have a lot of extra money to throw at your credit cards as part of your debt payoff efforts, the great news is that even small amounts added to your payments can make a big difference over time.

Say, for example, you're working on paying off a $5,000 balance at 18% interest and your minimum payment equals $25, or 2% of your outstanding amount due. In this scenario, let's say you added just $10 onto your minimum payment each month. By doing that, you would save $5,116 in interest over time and would become free of your debt a whopping 13.8 years ahead of schedule.

Now, it would still take you 17.1 years to become free of your $5,000 debt and you'd still pay a total of $7,212 in interest while you were doing it. But at least you'd save thousands and be more than a decade ahead on your repayment.

If you added just a little bit more, like $50 a month, the impact would be even greater. If you could come up with that much, you would save $9,487 in interest compared with making just the minimum payments, and would be free of your credit card debt 24.4 years ahead of schedule.

Why does paying extra make such a big impact?

As you can see, even a small extra payment can make a huge difference both in when your debt is paid off and how much it costs you to do so. There's a simple reason for that. If you make only minimum payments, most of the money is eaten up by interest and your principal balance doesn't go down by more than a few dollars each month. Since you just pay mostly interest every month, you make no progress on actually reducing your total balance owed and you get stuck in debt for decades.

But as soon as you add an extra payment onto your credit card each month, all of that extra money goes toward principal rather than to interest. Your balance goes down faster, so each month you're charged a smaller amount of interest and therefore you make more progress.

While it may seem hard to find an extra $10 or $25 or $50 a month, once you see the impact that these additional funds can have, it definitely seems worth it. So take a close look at your budget or even consider picking up some extra work hours if needed so you can pay off your credit card debt decades faster and for thousands of dollars less.