Pay Less in Interest By Demystifying Debt on Your Own

Understand How Interest Works

Every month, the interest rate is applied to your outstanding balance and an interest charge is applied to the balance. When you make a payment, your balance doesn’t reduce by the amount of your payment. Instead, it only goes down a fraction of your payment because part of the payment goes toward interest while the remainder is put toward your balance. There are many resources out there that can help consumers manage their credit better by showing them the payment process over time, otherwise known as an amortization table.

For example, assume you have a $5,000 credit card debt at 14% interest rate (which is considered average these days). Your finance charge for this month would be $58.33. Your minimum payment would probably be around $150. If you make that payment, your balance would only go down by $91.67 to $4908.33. If you expected your balance to be $4,850 after that payment, you’d definitely be surprised.

Furthermore, if you only pay the minimum on your balance each month, it will take 12 years and 5 months to pay off that $5,000. In that time, you will have paid $2,794.64 in interest. That’s an average of $232.89 every year that you spend on interest payments to your credit card issuer.

The higher your balances and the higher your interest rates are, the more money you’ll end up paying in interest. If you only pay the minimum, you’ll pay the maximum amount of interest on that balance.

How You Can Save Thousands On Your Debt

You’ve probably figured out by now that you can save thousands of dollars if you can avoid paying all that interest. The way to do that is to send extra payments to your credit cards each month. Make your debt repayment even more effective by focusing on one credit card at a time.

If you want to do your own calculations to estimate how much interest you can save or to figure out how quickly you can pay off a balance with a certain payment you can use a credit card repayment calculator like the one at

Use frugal living techniques to reduce your monthly spending and put the extra toward your debt. The more you can pay toward your debt each month, the faster you’ll get rid of that balance, and the more money you’ll save on interest.