Why small amounts do so much
Your normal payment is split: part covers the interest charged this month, and only what is left reduces what you owe. On a high-rate card, interest can take most of it.
An extra payment is different. Interest has already been covered, so every cent of it comes straight off the balance — and a smaller balance is charged less interest next month, and every month after that. One extra payment keeps saving you money for the entire remaining life of the debt.
The first dollars matter most
Look at the table above and compare the jump from nothing to $25 with the jump from $200 to $250. The same $25 buys far more at the start. If a large extra payment is out of reach, that is not a reason to skip a small one — the small one is doing most of the available work.
Where the money usually comes from
Not from earning more, in most cases. It comes from a subscription nobody watches, a renewed insurance policy that was never shopped around, or a tax refund that arrives once a year. Set the extra payment up as an automatic transfer on payday and the decision is made once instead of twelve times a year.
Common questions
- How much does an extra payment really save?
- More than most people expect, because every extra dollar goes entirely to the balance and then reduces the interest charged in every month that follows. Tap the amounts above to see the exact saving on your own balance.
- Is it better to pay extra weekly or monthly?
- Paying earlier is slightly better, since interest is charged on a lower balance for longer. The difference is small compared with the size of the extra payment itself, so pick whichever schedule you will actually keep.
- Will my lender apply the extra to the principal?
- On credit cards, anything above the minimum goes to the balance, and by law it goes to the highest-rate portion first. On loans, check that extra payments reduce the principal rather than being held as a prepayment of next month's instalment — a quick call settles it.
- Should I pay extra or invest the money?
- Paying off a debt is a guaranteed, tax-free return equal to its interest rate. Against a 20% card, no investment reliably competes. Against a 3% loan the argument is much closer.