Round your debt payments up
July 14th, 2009 | by mbhunter |This is a bit of a mind trick but it’s helpful to reduce debt. If your credit card minimum payments are $78, $187, and $365, make them $100, $200, and $400. If your car payment is $210, make it $250 or $300. If your mortgage payment is $879, pay the extra $21 toward principal and have $900 taken out each month.
I find it easier to think in round numbers so that’s how I pay a little extra on my mortgage each month. My extra amount is $20.41. Less than one dinner out per month — something that will hardly be missed, but as they say, it adds up.
Any way that you can trick yourself to make extra payments on non-producing debt helps. I still think, at least for now, that it’s a good idea to build up a good emergency fund before making big payments on your debt, because sudden joblessness will derail just about any financial planning. But if you’re doing that anyway, a little more toward your debt will help, and you’ll have the satisfaction that you’re doing something to speed your debt reduction.
8 Responses to “Round your debt payments up”
By Just Sayin on Jul 15, 2009 | Reply
very good idea , imight start doing this , the extra for my mortgage would only be $9.73 so might aswell do it , definitely easier to think in round numbers ….i’ll asky my wife to sort it out now
By Vikki C on Jul 17, 2009 | Reply
That is how I paid off my 5 year car loan in less than 4 years. I think my note was $250ish and I always paid $300 even if money was tight. I guess I should start doing that w/ our mortgage considering my goal is to pay that off in 15 years.
You are right about building your emergency fund instead of making big payments, BUT I am so sick of looking at my credit card balance everytime I log-in to my account that I might just pay it off next month.
During the year, my husband and I only contribute to our emergency fund when he gets a bonus and when he gets those extra paychecks 2x a year. We generally apply more than 1/2 our tax refund towards it so we should hit our emergency fund goal next year.
By Mikael @ Retire Early on Jul 17, 2009 | Reply
Definitely a good idea. It is just like the fact that if you make 13 yearly payments on your mortgage (instead of 12), you’ll be able to pay off your mortgage in 15 years instead of 30 years.
I haven’t tested this concept but I am sure that it is true since I’ve read it several places.
Mikael
By Frank @ ab rocket on Jul 17, 2009 | Reply
I take this very same approach when it comes to knocking down my credit cards bill. I always pay a bit more than my minimum payment in order to get rid of this bill quicker. I usually do $30 extra for each bill payment though.
By william on Jul 20, 2009 | Reply
A very good tip. I’ve been actually using it myself for some time now, and it’s working pretty well.
By william on Jul 21, 2009 | Reply
I did this for my mortgage, rounded it up to the next thousand. It is only around $200 more than the required monthly payment, but my mortgage will be will be paid off in 15 years instead of 20!
By william on Jul 22, 2009 | Reply
Any body done calculations on the savings by doing this? Or a calculator online that can help?
By S. B. on Jul 23, 2009 | Reply
Isn’t it interesting how our brains are wired? We tend to view a particular number as smaller when it’s associated with a much bigger number. Hence, if a $40 socket wrench is on sale for $20, we think it’s a huge savings, but if a $980 refrigerator is on sale for $960, we don’t view it as any big deal. But the savings are the same!
You are using this fact to your advantage when you pay down debt the way you are suggesting. If you made a second, separate mortgage payment each month for $21, I bet it would feel like it hurt. But when you pay $900 instead of $879, your brain says it’s no big deal because $21 is nothing compared to the $879 you’re already shelling out.