How To Reduce Credit Card Debt with Micropayments

How To Reduce Credit Card Debt with Micropayments

June 5, 2020         Written By Tracy Farnsworth

Holiday shopping, emergency car or appliance repairs, or temporary unemployment often has people turning to their credit cards. Interest rates on credit cards can be high, so it is best to avoid costly interest and keep balances as low as possible. Micropayments are one of the best ways to get balances down as quickly as possible and get control of your finances.

Most people pay their credit cards once a month. Ideally, you pay off your entire balance at once, but that is not always feasible. Everyone approaches bill paying as a once-a-month task, and there is a much smarter way to deal with credit cards. One thing you may not realize is that micropayments save a lot of money. If you can not pay off the entire balance at once, make micropayments to get the balance down.

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What are micropayments? While most people pay their credit card bill once a month, you can make weekly payments or pay twice a month. Instead of one payment of $200, you make weekly payments of $50 throughout the month or two payments of $100 every other week.

What Are the Benefits of Micropayments?

If you start making micropayments, what benefits do you gain? Weekly or bi-weekly payments are advised for several reasons. There are plenty of benefits that help improve your credit rating and help get your finances in order.

Lower the Amount of Interest You Pay Each Month

Credit card interest is often calculated using your average daily balance. If you are paying once a month, your average daily balance can be higher than if you are paying each week. Pay weekly and the daily balance decreases. That will reduce the amount of interest you are paying, which saves you money over time.

It Reduces Financial Stress

You may have run into this common financial situation. Your credit card payment is due on the same day your car will not start. The cost of a new battery is the same as your credit card payment. You need your car to get to work, but you do not want to deal with a late fee on your credit card either. What do you do?

When you make micropayments throughout the month, that financial stress is lessened. If your credit card bill is $200 and you are making $50 payments each week, you only have $50 to come up with during the last week of the month. It can make it easier to come up with the money for the payment.

Pay Down Balances Faster

Because micropayments help reduce the amount of interest you are paying, you will also pay down your balance faster. There is another benefit that makes it possible to pay down balances faster. In months with 31 days, you often get a fifth paycheck if you are paid weekly. Keep making the weekly micropayments during that fifth week. That one simple action pays off.

If there are four months when you get five paychecks, those four additional paychecks add up to an extra month’s payment each year. How does that help? You make 12 months of payments of $200 each year. At the end of the year, you’ve paid $2,400 towards your credit card or $12,000 after five years. If you are making the extra month’s payment each year, you’re paying $2,600 a month or $13,000 after five years. It may not seem like a lot but added to the decreased interest you are also paying, it makes a big difference.

It is important to keep paying the card down and not add new charges if your goal is to pay off the card. As you pay off your card and see the results of how much faster it is being paid off, you will gain confidence. If you have a balance on more than one credit card, micropayments give you the motivation to get one balance paid off and move to the next card.

When you carry multiple credit cards, your instinct may be to start with the card with the highest balance. This is not always the smartest move. Choose a card with a smaller balance and pay it off. You have a sense of satisfaction in a job well done. That confidence boost can help you keep going with the next card. The next card should be the card with the highest interest rate.

Reward yourself when you do meet a financial goal. If your goal is to pay off your store card within a year and you do it, treat yourself to something you like. It does not have to be an expensive reward, but it should be something that helps keep you motivated and feeling proud of your success.

Get Better Control of Your Spending

Micropayments help you better manage your spending. If you pay your bills each month, you have money building up in your savings until bills are due. Some people put everything into their savings and transfer money as needed. Others put aside money to cover bills in savings and place the remainder in a checking account for spending on things like groceries.

If money is building up in your checking or savings account, it may tempt you to go out for dinner or purchase that TV you see on clearance for a great price. You will spend more than is necessary and find yourself short when your bills are due. If you are paying weekly, more of your money goes towards paying down your credit card bills. It helps end splurge spending on items you want but don’t need.

Your Credit Score Improves

As you pay down your balances, your available credit increases. This helps your credit score. Factors that influence your credit score are:

  • You pay bills on time.
  • Your credit balance isn’t more than 30% of your available credit, which is known as credit utilization.
  • You’ve established a lengthy relationship with the credit card company.
  • You have a mix of debt, such as a car loan, credit card, and mortgage, rather than only credit cards.
  • You have not applied for too many new loans or credit cards.

Say you hold a credit card with a $5,000 credit limit. You’ve charged $4,000 on that card. Your credit utilization percentage is 80%, meaning you have used up 80% of the credit you had available. That is way higher than the 30% maximum that’s recommended. Ideally, you do not want to have charged more than $1,500 on that card. You need to pay off $2,500 as quickly as possible to drop the credit utilization. That will do wonders for your credit score.

Are There Any Disadvantages?

There are not many disadvantages to a micropayment system. However, it does take organizing and attention to detail. You need to make the payments each week or bi-weekly, and you are not accustomed to that. You may need to set up automatic payments or reminders. You also need to ensure you have the money in place on the day the payment is made.

You need to check with your credit card company to make sure micropayments are allowed. There may be a limit on how many payments you can make per month or how often. Generally, if you pay your account online, you are not going to run into a lot of rules, but it will depend on your credit card issuer’s terms and conditions.

Some credit card companies limit people to one payment per day, though some banks limit customers to one payment every three business days. You cannot make a second payment until the prior payment clears. The majority of today’s top credit card companies welcome micropayments.

How Do You Arrange These Payments?

Making micropayments is so easy. Look at your minimum payment for the credit card you want to pay using micropayments. Take that minimum payment and divide it by four if you arere paying weekly or two if you’re paying twice a month.

Log into your online credit card account or your bank or credit union’s online banking. Go to the payment page. Arrange the payment for the week. It is easier to schedule the micropayments each week at first until you have a better understanding of how much money is left over after paying other bills. Once you see how your budget is, you can switch to automatic payments if it is easier for you.

You do not have to limit your payments to this type of schedule. If you have two jobs and get paid twice a week, you could set your micropayments to be paid with each paycheck. If you owe $200 and get two paychecks per week, you could schedule $25 payments with each paycheck during the month. You will make eight payments in one month and help keep the daily average balance as low as possible to get the interest you pay reduced by as much as possible.

What if your credit card company does not allow you to make multiple payments each month? It may be time to look for a new credit card. With so many available credit cards with free balance transfers, you are certain to find a card that matches your needs and allows you to make micropayments.

The information contained within this article was accurate as of June 5, 2020. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

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tracy

About Tracy Farnsworth

Tracy Farnsworth went straight from a business track in high school to a full-time job in mortgage banking in Burlington, Vermont. After having children, she built a freelance career in content writing and took online classes as time allowed. She completed Social Media Marketing and Digital Marketing certificate programs with Ireland's online Shaw Academy and completed several courses in SEO and analytics. In her free time, she's the “mom” to a very clingy rat terrier, and the pair walk at least a mile every day. She's also a novice baker who is trying to master the art of sourdough bread.