CC Interest and Paying Down Debt

I'm not sure how to ask this and have it make sense. Maybe it's simpler than I think.

I have a $5,000 balance on my Discover Card. The interest rate is 25%. I am not looking to transfer the balance to a 0% CC. I have been paying the minimum payment, right now about $120/month. Interest is about $100 month. So basically I'm paying down $20. I will be paying extra on the Discover card now to get it paid off. In addition to the $120 minimum payment, I was going to pay at least enough to cover the interest so the balance will actually start going down. I will pay more than $100 if I can each month, but I'd like to at least cover the interest. When I pay extra, that amount is deducted from the minimum payment, so the minimum to be paid is not the $120, but would be $20. I try to keep in mind that I want to pay $220/month minimum, so it does not matter what the minimum due is on my account statement. I will pay the $220 in whatever way is necessary (auto pay & manual pay). 

Questions:

  1. Is the extra that I send in going toward paying down principle? (I think I've gotten something confused here so not sure this is even something to worry about with CC)
  2. Is paying an additional amount that at least equals the interest amount, help to pay down the balance a bit faster?
  3. How much extra should I pay to make better progress? (Keep in mind that I only get SSDI for income, $1,617/month, but I'll pay all the extra that I can)

I might have just been thinking about this so much that it is just a jumble. I'd appreciate any help that brings it into focus for me. Thanks.

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  • For #1, the best would be to call the CC. They will know the terms of your particular CC and can tell you exactly what happens. Have you tried paying additional on the CC already? What happened to the account balance at the bank? If the extra was applied to the balance, then the extra went to pay towards the principle.

    #2 and #3: those are the same questions. The more you pay each month, the quickest the progress. As an extreme example, if you were to sent the $5,000+interests to the card right now, you would be done and have no more interests applied. That's obviously not possible, but you are the only one who can decide how much you can pay. If you are looking for motivation on how much interests you would save or when you would have it paid off if you paid X or Y extra, you could check debt management tools such as undebt.it . Just put the one debt in if you want (or all of your debts) and see what happens with different extra payments. You can specify in what order to tackle the debts so even if you put all the debts in, you can put the Discover Card as number 1 and it will apply all the extra to that card.

    Edit: I've checked with undebt.it, you can simply use their free snowball calculator with 1 debt: https://undebt.it/debt-snowball-calculator.php#snowball-calc

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    • nolesrule
    • Stealing From the Future fix is an improvement but is incomplete....
    • nolesrule
    • 1 mth ago
    • 5
    • Reported - view

    There's no such thing as principal with a credit card, only the balance. Interest is calculated based on the average daily balance of your credit card during the statement period and posted on the statement date, at which time it becomes part of the balance. Think of interest as a charge made to the card on the last day.

    This also means that the timing of payments will make a difference on the amount of interest. If you make the payment earlier, the average balance will be lower. If you make it later, the average balance will be higher.

    The basic answer is the more you pay, the less interest you will have incurred and the faster the progress.

    Like 5
  • What helped us in paying down our debt was to have a category for interest and I would estimate the amount of interest per month on the card and make that part of the budget. Then, I would decide what amount I wanted to pay down on the card every month. It was easier because then I could take the balance at the time and calculate based on the balance in a simple excel spreadsheet how much to pay without worrying about interest because I had already taken care of it. 

    In your example, I would show:

    Discover Interest category $100

    Discover Credit Card category $120

    As the interest goes down with the balance, you can move the budgeted money from the interest category to the credit card. I like this option because it allows me to see how much we were paying for the convenience of borrowing money. For us, at our high point, it was $700 a month. We had no idea.....We are now down to our final credit card which should be paid off in a year.

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  • Thanks everyone!

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    • internettie One suggestion that I can offer that helped my wife and I get a hold of the high interest credit cards was to call them and see if you can get a reduction to your APR. Discover was not one of the companies that was willing to work with us, same with USAA. I was told that my APR was set when I opened the card (Prime + 19.74% 😮) That being said, we used UnDebt It to help us figure out which cards we wanted to target that had the highest APR and throw the debt snowball at them as long as we could.

      In one phone call, my wife and I had 4 lines of credit with AMEX dropped from Prime + 15.99% to Prime + 8.49%. That one call literally saved us thousands of dollars in interest over the time it took us to dig ourselves out of credit card debt. That being said, YMMV when it comes to the card issuers... there's a few that I closed and won't ever have a card issued from them again. 

      Like 1
      • internettie
      • BestDayEver
      • internettie
      • 1 mth ago
      • Reported - view

      Colonel K0rn thanks. I'll look into that.

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