Welcome to a new regular series here on Disease Called Debt called Debt Elimination Tips!
Each week, I’ll be sharing a quick and easy tip which you can use to get out of debt faster. Today’s debt elimination tip is about making weekly overpayments towards your debts.
If you don’t overpay what you owe on your debts, you could end up stuck in a minimum payment cycle, where all you can afford to pay is the minimum payment. That’s not a great place to be in, as your finances will be stretched very tight and it’s possible for your debts to become out of control very easily.
In addition, if you only make the minimum payment towards your debts, you could not only end up paying them for decades, but you’ll pay an absolute fortune in interest over that time too.
Why make weekly overpayments towards your debts?
Without focusing too much on how MUCH you’ll be overpaying, it’s important to get into the habit of making overpayments. Just like bad habits, you can form good habits too which in time you’ll do without thinking, as a matter of course. This is a great first step to take when trying to put in place some good habits surrounding your financial situation.
Why weekly and not monthly overpayments?
If you leave it until the end of the month to make an overpayment towards your debt, you’ll be less tempted to do just that. Throughout the month, you may be tempted to spend elsewhere like going out for dinner or buying something new or just generally submitting to impulse purchases here and there.
There are two main benefits to overpaying your debt weekly. One is the sheer knowledge and satisfaction that you are proactively doing something about your debt. The second is that when you do spend money on something new that you regret later, you won’t feel quite so bad because you’ll have already made headway with your getting out of debt goals.
How much to overpay?
The short answer is as much as you can afford, if you really want to get out of debt as fast as possible. But the truth is that anything is better than just the minimum payment. The more you can overpay, the more you’ll be paying off your debt and not just the interest. That means you’ll be out of debt faster!
Beware of the false overpayment trap
Some lenders automatically reduce the direct debit amount for borrowers the month after receiving an overpayment. If you don’t watch out for this, you could end up paying less the following month without noticing and therefore not seeing the benefit of your overpayments.
Keep an eye on your bank account statement to make sure you know how much is being taken by direct debit for your credit cards and loans. If your lender reduces the direct debit to compensate for overpayments, the best thing you can do is make sure you keep on overpaying enough throughout the course of the month to cover your direct debit plus your overpayment on top.
I hope you found this quick debt elimination tip useful. Don’t forget to subscribe so that you don’t miss out on any debt payoff tips in the future!
Image © Disease Called Debt
Awesome post! Such a simple way to get ahead of your debt—my finances would be a mess without this strategy. I’m looking forward to this series 🙂
Brittany recently posted…Saturday Morning Hustle: Links we Loved this Week
Thanks Brittany! A key part to paying off debt is forming good habits to start with!
I would add on to that though to be careful not to get TOO excited about overpaying if you suddenly get the urge to withdraw all your savings (like an emergency fund) because you’re sick of debt. It’s very tempting, but could leave you in a very vulnerable position if any emergency comes up, thereby throwing you back into debt again.
Tonya@Budget and the Beach recently posted…Health & Wealth Challenge
Great point Tonya – it’s important to have some money tucked away for security – otherwise you can actually end up in even more debt if an emergency crops up.
Good tip Hayley! I think I should switch to paying “extra” (beyond the snowball amount) weekly. As you said, I somtimes end up spending on things I shouldn’t, like eating out, and then at the end of the month the “extra” I was going to put toward debt is all used up before I’ve put any toward the debts. 🙁
Kayla @ Shoeaholicnomore recently posted…Shopping Ban Update & Approved Spending List
Thanks Kayla! Even if you just overpay a little each week, you’ll soon get into the habit of it and be rewarded by watching your debt numbers go down more quickly!
When I first started paying off my debt I was caught out by my direct debt being reduced so I hadn’t actually paid anything more than the minimum repayment. Handily, however, this particular creditor has a system of setting a fixed direct debit so I am able to set a sum above the minimum repayment each month
Victoria @thefrugaltrial recently posted…The Debt Trap
Setting a fixed payment amount up is definitely a good way to keep on top of those pesky creditors!
Cool tip! I wish my lender would just minimize my monthly payment that gets taken out. My payments remain the same and gets taken out the same day no matter how much I have paid that month to bring it down. Instead of being aware that I am only paying the minimum towards my debt – I always have to make sure that I have enough to pay it when it comes time for them to take it out automatically
I cant wait for the rest of the tips!
Michelle recently posted…Week 21 : Not the smartest week
Thanks Michelle! Your situation does sound tricky – it would be nice to have some flexibility when you need it. Saying that though, the good news is that your debt is getting paid off!
Hi Hayley and thanks for the elimination tips. Some good sound advice!
“Beware of the false overpayment trap” – Wow…I did not know this. I can imagine this screws more than a few debtors over without them knowing! Sheesh!
Thanks again for looking out for us and take care. My best to all.
lyle @ the Joy of Simple recently posted…When Simple Living Backfires!!
Thanks Lyle! Yes, I can imagine that too. I never used to check my credit card statements (or bank statements) before I started really getting serious about my debt. If I had tried to overpay my debt then, I wouldn’t have known whether my direct debit had been reduced or not!
Paying debts weekly is really a good habit! It enables you to keep track of every bill or debt to pay. Planning to apply it to my routine asap. I am sure I can pay my debt sooner than later. Thanks for idea!
Jayson @ Monster Piggy Bank recently posted…What does the Best Income Protection Insurance Provide?
You’re welcome Jayson, hope it helps you! 🙂