Calculator: How Can I Pay Off Credit Card Debt?

If you're up to your eyeballs in credit card debt, it probably seems sometimes like you'll never pay off those bills.

No one is saying it'll be easy, but with some focused strategy, and help from your credit union providing this calculator, you'll be able to pay off those credit cards--probably sooner than you think.

The key is having a plan of how and when you'll pay off debt.

By paying just an extra $25 to $50 a month toward one of your credit card bills, you'll be able to pay off that card, then move to the next one.

You're probably wondering, "How can I come up with extra money?" Curbing spending is the place to start. Here are some ways to identify spending leaks so you can redirect small savings to credit card debt:

Adjust your tax withholdings and put the extra money toward debt each month. The average tax refund is around $2,400--don't lend money to Uncle Sam.

Pack your own lunch. Fast food at $4 a day adds up to around $1,000 a year. Brown bagging is a good place to start.

Pay bills online. You'll avoid late fees (late payments also can raise your interest rate) and save on postage as well.

Review telephone and ISP (Internet service provider) bills. Are you paying for features you don't use?

Adjust your thermostat at night or when you're not home so temperatures--and expenses--stay under control.

Consider traveling during off-peak/off-season times or think about putting that big vacation on hold. Travel in-state or make day trips instead.

Save on gas by combining errands instead of making several little trips the same day.

Trade in high-interest bank credit cards for a low-rate credit card from your credit union.

Use your credit union for all your financial needs. Credit unions often charge lower fees than banks--you keep the difference.

A handful of credit card issuers have raised minimum payments from 2% to 4% of the balance due. If you can afford these higher payments each month, you'll benefit over the long haul. If you can't afford this increase, chances are you're in over your head. Ask someone at your credit union for help in straightening out your finances.

Consider the example of a $2,000 balance at 18% interest. If your minimum payment is 2% of the balance due each month, it will take you about 19 years to pay it off and you'll pay $3,862 in interest. (A 2% minimum payment would start at $40 and taper to $20. Maintain the $40 and you'll pay off the debt faster. That's what our calculator assumes.)

If you're paying 4% of the balance due, you'll pay off the balance in seven years and four months and cut your interest costs to $1,031. (A 4% minimum payment starts at $80 and tapers to $20.)

By paying 8% of the balance due, much more than the minimum, it will take you three years and nine months to pay off, and you'll pay about $433 in interest. (An 8% minimum payment starts at $160 and tapers to $20.) Remember, these calculations assume you add no more charges to the card.

Always pay the minimum amount due so you don't incur a late fee, and if possible, pay more than the minimum.

This calculator assumes you are going to pay no less than your "starting" minimum payment. It also assumes that you will pay off the credit card with the highest interest rate first--by throwing all your newfound cash at that bill while paying the minimum on the other bills--and that you'll add no more debt. That means, no matter what--unless for a real emergency--you won't use those cards. Print your results to save for future reference and to track your progress.

This calculator is solely for informational purposes and provides reasonably accurate results; the calculations are not intended to be relied upon as actual savings results computations.

Published July 19, 2005