No matter how much or what kind of debt you take on, it’s essential to have a solid repayment plan. Since most interest on debt compounds over time – that means owing interest on the interest applied to the loan – a small amount borrowed can quickly increase. When handling debt, it’s best to pay it back as quickly as possible.
The Power of 50
This financial formula helps you pay off your debt faster. Let's say that you have a $3,000 debt at an annual interest rate of 18 percent. If you make the 2 percent minimum monthly payment of $60 per month, it will take you eight years to pay off your bill – assuming you don't continue to spend any more money during that time. By the end of the eight years, you will have paid $5,760 – almost double the initial $3,000. By paying an additional $50 per month, you can pay off your debt in three years instead of eight, which saves you over $1,800 in interest. The bottom line: paying off your debt sooner rather than later saves you money.