How A Silly Little Experiment Helped Me Get Out Of Debt

I once sent a credit card company $5 per day, every day, for a month.  Seriously.

The year was 2005 and I was in full on debt reduction mode.  Pumped up by the comments left by my readers – and ready to be debt free – I spent most of my waking-hours thinking about ways to reduce my debt.

Somehow, the thought struck me:  What if I manage to save $5 a day – say by skipping my morning trip to the convenience store or brown-bagging lunch – how quickly could I put that $5 to work?

I decided, just to see if it would work, to use online bill-pay to send a series of $5 payments to the credit card company.  I scheduled the payments, one right after the other, for each day of the month.  Every other day or so, I would check my credit card balance (online) and, sure enough, my balance was going down, $5 a day.

At the end of the month, I managed to reduce my credit card balance by an “extra” $150.  The silly little experiment worked!

Now, am I suggesting that anyone else do this?  Not really.  In fact, I’ve heard that some credit cards actually limit the number of payments that they’ll process during a billing period.  Nevertheless, I do think that my silly little experiment was valuable, in that it taught me the power of micro-payments.

I’ve mentioned micro-payments before – those small payments, sent throughout the month, which help to reduce the average daily balance in your account.  These payments are made after regular minimum payments and are in addition to the extra payment one might send while getting out of debt.

Not only did I learn the value of micro-payments, but I also learned that money management is about much more than just dollar signs, percentage points, and mathematical calculations.  Money management is about keeping your head in the game and staying focused on specific goals.  Each day, as I logged in to my checking account and scheduled another payment – that was one more day where I had successfully saved $5.  This $5 was above and beyond my regularly budgeted-for debt reduction payment.  This $5 required a change in my habits.

For thirty days, instead of focusing on the big-picture, I focused on the very, very small things.  If I wanted a soda, I had to remember the $5.  If I wanted a newspaper, I had to remember the $5.  If I wanted to rent a movie, I had to remember the $5.  This silly little experiment (which, in the end, wasn’t really all that sill), helped me learn the value of every dollar that comes in to my life.

If I had it to do all over again, here’s exactly what I would do – and it’s what I do when making micro-deposits to my savings account:

1.  I would set a goal of saving $5 each day.

2.  At the end of the week, I would send a micro-payment (or micro-deposit) of $35.

3.  A couple of days after sending the micro-payment, I would check my credit card balance, just for that emotional boost that comes with seeing my debt reduced.

The month after my silly little experiment, I went back to my standard practice of making my minimum payments to all accounts, making an extra payment to the first account on my debt snowball, and then I made four micro-payment throughout the month.

Micro-payments rock and they really kept me motivated. Have you used micro-payments?  If so, leave a comment and let us know about your experience!

One final note – All of these payments were initiated by me, using online bill-pay.  I never game the credit card company access to my checking account.  In other words, my bank was sending a payment to the credit card company.  The credit card company was not “pulling” money from my checking account.  And, obviously, this micro-payment thing probably won’t work if you are sending payments via paper check from your house.  The postage cost would be too high.


NCN

http://www.ncnblog.com

No Credit Needed is a personal finance blog about debt reduction, saving money, and simple living. Thank you for visiting the site and please consider subscribing to No Credit Needed by Email. Have a blessed day!

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15 thoughts on “How A Silly Little Experiment Helped Me Get Out Of Debt
  1. jessica W

    @NCN–we LOVE micropayments at our house. We roll up the quarters in the change jar, and empty our envelopes at the end of the month and anything we can come up with and send a “snowflake” payment. Same goes for blog revenues, and any other “surprise” cash that turns up in the course of a month.

    Savings Diva–I totally hear you! Have you tried Smartypig.com for ways to trick yourself into savings? They automate transfers from your regular account into a high-yield savings account. We’ve been using Smarty pig since March and are very happy with them. The savings acct yield isn’t HUGE, but it’s 2%, far better than we’re getting at our bank. The convenience factor can’t be beat! It’s perfect for me–being self-employed, I have to save up my IRA contribution each year–I can just automatically save a certian amount each month and transfer it to my IRA at the end of the year.

     
  2. Jeff

    What a creative way to use the micro payments. I love the way it kept you in the game of paying off your debt. I’m playing the game now and can’t wait to give the weekly micro payment a try. Thanks for the post
    Jeff

     
  3. Lulu

    I use something similar to this ever since I started my zero based budget. I send a micropayment to my credit card four times a month and by the end of the month the bill is paid in full so I never carry a balance and earn cash back on purchases.

    I use ING to push my payments like you do so the cards never have access to my checking account.

    I also use ING to save this way and push microsavings weekly to a specified ING sub account for savings.

     
  4. Studenomist

    5$ a day that’s similar to how I went on vacation the first time. I saved up $20 a week until I had a $1000 and then I was off on my first trip! Whether your paying down debt or saving for a goal, it’s fun to see what small changes can do to your financial system.

     
  5. Snowballer

    See what I did was I paid every 2 weeks, but every day I found a couple dollars, I’d transfer it via ING into the account I used to pay the credit card bill with. So I was effectively making daily micropayments without sending in checks or whatever so frequently.

     
  6. Credit Card Chaser

    It’s important to note (as you mention in the disclaimer at the end of the post) that in order to schedule out more than a couple payments a month you will have to use your online checking’s bill pay to “push” payments to the credit card rather than have the credit card company “pull” payments from the checking account because many credit card companies have limits as to the number of times they will “pull” payments each month.

     
  7. grapkulec

    Hi,

    I recently configured my online bank account to send 5 PLN (I’m from Poland) each day into my emergency fund account. Main idea behind this was that I’m perfectly OK with putting away 5 PLN per day but putting away 300 PLN once a month seems like a big sacrifice. I’m just at the begining of gathering emergency fund and gaining control over my finances so I figured out that whatever psychological trick I can pull on myself is worth trying. So I deceive my hedonistic mind in good cause because I think that root of all evil debts is inside our heads.

     
  8. grapkulec

    Hi,

    I recently configured my online bank account to send 5 PLN (I’m from Poland) each day into my emergency fund account. Main idea behind this was that I’m perfectly OK with putting away 5 PLN per day but putting away 150 PLN once a month seems like a big sacrifice. I’m just at the begining of gathering emergency fund and gaining control over my finances so I figured out that whatever psychological trick I can pull on myself is worth trying. So I deceive my hedonistic mind in good cause because I think that root of all evil debts is inside our heads.

     
  9. Vinny Financio

    We used the Micro Payments when we were working our way out of debt. It worked great for us. We also used a ‘$5-a-day” plan at first but worked like hell to push it up the the “$60-a-day” plan — that’s when things really started happening!

     
  10. Amy

    It’s a great way to ‘trick’ your brain into saving. However, I check my bank account daily (sometimes up to 5 times a day) so I see where this $5 is going each and every time.

    I use micro payments for both my savings and debt repayment. Every day $5 gets transferred to my savings account, and every Friday $20 of that gets transferred to two credit cards ($10 each), along with the usual minimum monthly payments that the CC’s pull. I am on track to pay off both these credit cards (total of $600 at 28.9% interest) by the end of the month AND still have about $100 in savings to boot. This does come with a consequence tho – if I over spend, I usually have to use what I’ve put in my savings to cover something!!!

     
  11. Barbara P.

    Yes, I have done the micro-payment thing you talk about here. I have done it with rebates, refunds, and reimbursements (i.e., “found money). This would be money that I had already spent or wasn’t depending on having, so it wasn’t like I was missing it. I also collect my spare change in a separate little change purse. After about two weeks, I take it to the Coinstar at my grocery store. I has been as little as $3.00 and as much as $20.00, so it can make a huge difference in the credit card bill. Also, I get paid every two weeks and if I look at my checking balance and notice that I still have $300 left and no bills to pay, I will send $50.00 to the credit card. On payday when I usually only have a few bucks left in my checking, I will send it to the credit card along with my regular payment.

     
  12. Sheila Semmens

    Another way of “finding” money is to discipline yourself to use coupons but instead of just buying more groceries since you are spending less, put the money the coupons saved you into an account to add to your debt snowflakes!

     
  13. Shona

    I currently use this method to pay down my debt as well. It works like a charm. In fact, I have had my bank call to ask why I am paying back so much more than the minimum payment on my final credit card debt! It’s now down to the last $1047, which will be paid down to zero by May 2010 if all goes according to plan – possibly sooner if I can squeeze more savings from my day to day expenses. Every penny counts,although here in South Africa, they are referred to as cents…