Debt Reduction

How Making Multiple Payments Can Speed Up Your Debt Reduction Progress

As I have mentioned before, I am a big fan of making multiple debt reduction payments, throughout the month, as a way to speed up the debt reduction progress.  Before discussing the why of multiple payments, let’s discuss the how.

How To Make Multiple Monthly Debt Reduction Payments

1.  Make minimum monthly payments to all creditors.  This can be the actual minimums, as billed by your creditors, or higher, self-imposed minimums, as determined by your debt reduction plan.

2.  As you earn, save, and receive extra income, throughout the month, make extra payments to the first creditor listed in your debt reduction plan.  Use free online bill pay to send extra payments, adding apply to principal to the memo section of each check written.

Why Make Multiple Monthly Debt Reduction Payments

Obviously, instead of making multiple payments throughout the month, you could save up any extra in a savings account, and send that money to your creditors the following month.  In fact, that’s what a lot of people do.  I, on the other hand, really believe in the power of making multiple monthly payments, and here’s why.

Keeps My Head In The Game –

If I am sending multiple payments, say an extra payment each week, I am actively involved in the day-to-day management of my finances.  Every transaction – every purchase, every expense -becomes an opportunity to save money.  Knowing that any money saved has a purpose, and that it will, almost immediately, reduce my debt, really helps to keep me focused.  Remember, personal finance is as much mental as it is mathematical.

Reduces My Average Daily Balance –

For the math nerds in the audience, making multiple monthly debt reduction payments makes mathematical sense.  Why?  As payments are credited to your account, your average daily balance decreases.  A lower average daily balance leads to lower finance charges.  Lower finance charges lead to more rapid debt reduction.  Click here to view and download a free spreadsheet for calculating the impact of payment-timing and average daily balance.  The only way that you lose the mathematical advantage is if you are earning more in your savings account than you are paying in interest on your debt.

Provides A Much Needed Emotional Boost –

Let’s face it, debt reduction can be a long, arduous process.  For me, I needed the psychological rush that came from longing into my credit card account, and noting that my balance had decreased.  Even if you can only spare a few dollars, it always feels good to be rid of debt.  As crazy as it sounds, I once sent $5 a day to a credit card company, for a solid month, just to see if the process would work.  I don’t recommend this particular strategy to anyone, but I do think that it is wise to send two or three extra payments each month.  Like stepping on the scale and seeing another pound lost, we need these emotional boosts, throughout the month, to keep us going.

Gives Purpose To Any Unexpected Income –

It is very easy to squander unexpected income.  I can remember receiving gifts or bonuses in the past, and instead of using them wisely for long-term stability, I would waste them on frivolous purchases.  If you are making multiple monthly debt reduction payments, you know exactly what to do with any extra or unexpected income.  You make an extra debt reduction payment.  This simple, direct approach radically changed how I dealt with poor spending habits.  Staying engaged, involved, and on plan, I stopped wasting money, and I started managing it.

Concept Works Even After All Debt Has Been Eliminated –

I am now debt free, and yet I still make multiple monthly payments – only now I make them to myself – in the form of contributions to my savings, retirement, and education savings accounts.  Throughout the month, as I earn, save, or receive additional income, I am making transfers from my checking to my savings account.  This constantly-engaged-mindset really works well for me.

What about you?  Have you or are you making multiple debt reduction payments?  Leave a comment and let us know how multiple monthly payments are working for you.  Or, if you have any questions, feel free to ask.

For those who follow Dave Ramsey’s Debt Snowball, you might want to check out Paid Twice’s awesome series on SnowFlaking – her take on making multiple monthly payments.

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11 thoughts on “How Making Multiple Payments Can Speed Up Your Debt Reduction Progress

  1. @Nate
    Well, even if it’s not “extra income” – any money allocated towards expenses that is not used can be applied towards debt reduction. So, if you budget $100 for gas, and spend $80, you could send $20 for debt reduction.

  2. I wrote about this for MSN Smart Spending. Tim and I have always paid at least twice a month.

    A lot of the reasons are the same — especially, as you cite, the double-billing cycle. Youch! Best to keep your average daily balance as low as possible.

    And, like you say, it’s a good way to make progress — and see that you’re making progress.

    For us, though, one of the main benefits is also that the money then definitely goes to debt. There are times when our health deteriorates (a lot of times, actually). And it’s easy when we’re tired and sick to spend more than we intend to. If we keep putting all available monies toward debt, it’s not spending time in our checking account, where it may evaporate on small items.

    I know we should be able to make sure that the money *doesn’t* go anywhere, but sometimes it’s better to work around a slightly less-than-perfect to reality (and then slowly work on changing that) than to hold ourselves to an unrealistic ideal, which ensures only that we fail and feel terrible about ourselves.

  3. Also, to Nate, unexpected income can come from a lot of places.

    1. Get birthday or holiday money? Keep a little bit out (you have to treat yourself once in awhile) and put the rest against debt.

    2. Recycling. It doesn’t pay a whole lot (very little, actually) but perhaps your workplace would let you take its cans/newspapers/etc.

    3. Things you no longer need & sell through Craigslist or Ebay.

    4. As NCN points out, money left over from your budget at the end of the week/month/quarter

    5. Any time you budget for a purchase, then find it cheaper elsewhere — put the spare money towards debt.

    6. Money made off your blog.

  4. i do this too. i love making multiple payments throughout the month. sometimes its only 10 or 20 dollars. i use mint, and have an iphone, so i can track my progress remotely. it’s nice to see that number of all of my credit card debt going in the “downward” direction. rather than spending one day a month making those payments, i feel like i’m much more actively involved in paying down debt when i do it throughout the month. it keeps me interested, it makes any money i have coming in immediately applied to credit card debt, and i truly think it’s speeding up my goal of paying off my cards.

  5. I do this with credit cards. Online payments are easy and I throw any “spare” money I come across at that debt. It’s amazing how quickly it adds up.

  6. Thanks for explaining this so clearly – I do this and it really helps me. Used in conjunction with a big flashy chart on my refrigerator, the multiple payments has helped me to achieve several financial goals.

    If only I could figure out how to apply it to weight loss.

  7. Love your blog! I believe you have an incorrect word. I think you meant logging vs longing… Blessings, GW

    Provides A Much Needed Emotional Boost –

    Let’s face it, debt reduction can be a long, arduous process. For me, I needed the psychological rush that came from “longing” into my credit card account, and noting that my balance had decreased.

  8. Hi just made final payment to cap one, overdraft checking will be paid off at the end of march and than its visa’s turn i have been making double payments but i never put for principal only on the payment I knew you could do that for loans but can you do that for a credit card

  9. I know this works because we used it to pay off our car loan early. Any snowflakes money we received (including last year’s rebate check) was sent to pay off the debt. It’s amazing how quickly the debt went down. This is great information NCN!

  10. @ Nate

    If you receive a fortnightly pay packet and have monthly expenses, there will be some months where money allocated for certain expenses doesn’t need to be allocated. (26 pay packets in a calendar year equals 13 months)

  11. I do this snowflaking with my student loans. Every “extra” $20 that I find or compile goes directly to the student loans. It reduces the average daily balance which in return reduces the finance charge that is accrued on a monthly basis. I think sometimes we forget that even the smallest payment adds up over time.

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