More For Your Money - University of Illinois Extension

http://MoreForYourMoney.extension.uiuc.edu

PowerPay© Your Debts

Here’s another idea you might like to try to pay off your credit debt faster. PowerPay© your debts.  By power paying you take the money you have available from a paid-up debt and use it to pay extra on another debt. 

Each month budget a certain amount of money for all your debts.  This amount is based on your minimum monthly payments, plus any extra money you can pay toward your debt. 

When one debt is paid, you use the freed-up money to pay more on another debt — usually the one with the highest interest rate.  As a result, your debt is paid off faster, and you save money.

Important:  Make a commitment to pay off your debt.  This means that you don’t add any more debt—no more charges on your credit cards and no more loans.  And, you use the freed-up money to pay down other bills.

Let's look at this example to see how it works.

Thomas has the following debts:

Lender
Amount Owned
Minimum Monthly Payment
Interest Rate
Credit Card
$1,200.00
$35.00
18.5%
Department Store
$400.00
$40.00
10.5%
Car Dealer
$1,000.00
$75.00
8.0%

The table below compares repaying Thomas’ debt without power payments and with power payments.  Using the power payments, Thomas chooses to pay off the debt with the highest interest rate first.

 
Without Power Payments
With Power Payments
Lender
Number of Payments
Total Paid
Interest Paid
Number of Payments
Total Paid
Interest Paid
Credit Card
50
$1,720.37
$520.37
20
$1,473.35
$273.35
Department Store
11
$420.45
$20.46
11
$420.46
$20.46
Car Dealer
15
$1,050.78
$50.78
15
$1,050.78
$50.78
  Time to repay debt 4 years,
2 months
1 year,
8 months
   
  Loan amount $2,600.00 $2,600.00    
  Interest paid $591.61 $344.59    
  Total amount paid $3191.61 $2944.59    

By power paying his debt:

1. The time it will take Thomas to pay off his debt is shortened by
(number of years/months)
2. He'll save $

Now it’s time for you to enter in your debt figures and see how this works for you.  Click on the following web site from Utah State University Extension – www.powerpay.org.  Follow the instructions to log in and enter your own information.