## Wednesday, December 16, 2009

### A Little Math

I mentioned paying down money on my credit card in two ways in my last post.  I haven't yet started making the direct payments I listed as a goal but here's an update on the regular monthly payments I'm already making.  I (aim to) pay \$90 every 2 weeks and last month I was charged \$87.36 in interest.  So I lowered my credit card debt by a total of \$92.64 last month.  The previous month I only made one of the 2 payments because I was juggling a lot of other bills and was trying to get current on everything.  I paid \$88.19 in interest and therefore my \$90 in payments lowered my debt by a whopping \$1.81 that month. So I was charged \$0.83 less in interest this month than in November.

In January I'll be charged less interest than I was this month and so on.  So, when I say that I'll pay down \$1,080 in regular credit card payments, that means just one of my \$90 payments each month will reduce my debt by that amount.  My other payment each month goes mostly towards interest at this point but a couple of dollars of that are going towards reducing the debt too and that amount is rising by close to a dollar per month.  I'm definitely no math whiz and won't even take a crack at figuring out what the interest charge will be a month from now (and therefore the difference between the \$90 paid and the interest charged), but lets ballpark the difference at \$3.50.  Then, in February, it would be around \$4.50, in March around \$5.50 and so on up to \$14.50 in December of next year.  It will be more than that because of the way compounding works, but I'm trying to keep it simple.  Add all those small amounts together and I get \$113 extra in debt reduction over what I budgeted for in my goals!

It gets even better.  I overlooked the fact that I pay every 2 weeks, not twice a month.  That means there are 2 extra payments per year or another \$180 that I'll be automatically paying down that I didn't even think about when I first wrote out my goals!  That's almost another \$300 I'll pay down without even doing anything different.  And, when I start making those extra payments of \$50 every two weeks, that will bring down my balance even faster, meaning even smaller interest charges every month than I had figured on!  I love to see compound interest working in my favour for a change.  And what I had originally dismissed from my calculations as an almost immaterial amount will snowflake gradually into a serious amount of money by the end of next year!

Of course, all this is contingent on making the payments as planned and not charging anything new (or paying it off within the month, which would have a minimal effect on the interest charged).  But just running these numbers, rough as they are, makes me feel so good!  I really can make significant progress in reducing my debt!  I'm going to get out of debt as soon as possible and buy my little piece of land (and then pay it off before we hit retirement age).