Pay biweekly to bring down that balance
By Lucy Lazarony • Bankrate.com

Feeling fed up with credit card companies and all the ways they manage to yank money out of you? Fight back.

Use card companies' most common money-making ploy -- that ever-ticking interest clock -- against them when paying down that card.

Interest accumulates daily whenever someone carries a balance on a credit card. Because federal law requires credit card companies to process payments the day they arrive, "the sooner you get the payment in there the less interest you're going to pay," says Catherine Williams, president of the Consumer Credit Counseling Service of Greater Chicago.

So not only can sending in that payment the day a bill arrives protect people from being slapped with a costly late fee, it can save them money. And the bigger the balance, the more interest is saved by getting that payment in days or weeks early.

Stop using, start paying more
One way to really mow down some of that interest is to stop charging on the card and make payments every other week rather than every month, and never decreasing the payment amounts until the card is paid off.

Here's how it works, according to Invest in Yourself: Six Secrets to a Rich Life, a book written by Marc Eisenson, Gerri Detweiler and Nancy Castleman:

Sending a half payment every two weeks results in 26 half payments, or 13 monthly payments a year. So paying this way gives a customer the equivalent of an extra monthly payment each year. And getting a portion of the payment in sooner knocks down some of that daily interest.

Let's take a look at some numbers. Consider a credit card with a $5,000 balance, a minimum monthly payment of $100 and an annual percentage rate of 14 percent (See Bankrate's credit card home page for the latest rates).

By holding steady on monthly payments -- always paying $100 a month -- the card would be paid off in six years and four months with a total interest cost of $2,547.85, Eisenson says.

By sending $50 payments biweekly, that same card would be paid off in almost 10 months earlier -- five years and six-and-a-half months -- while saving $339.01 in interest.

Time is relative
If five or six years seems like a long time to pay off a credit card, consider this: It would take more than 25 years to pay off that card by simply sending in the ever-descending minimum payment each month -- typically 2 percent to 3 percent of the card's outstanding balance. Not only would a person spend a quarter of a century paying down a $5,000 credit card balance, but it would cost them a monstrous $6,332.19 in interest.

People who can manage to pay the minimum payment -- but little more -- may want to consider the biweekly pay-down method. It will help them get the most bang for each buck they scrape together.

"Let's say you don't have a lot of breathing room," Detweiler says. "You can just continue to make minimum payments and by using this method you'll pay off the card faster and save money in interest."

But she cautions that people must be organized and financially disciplined for it to work. Using the biweekly method means sending a payment every other week like clockwork for years. It also means having that payment amount available every two weeks. Lots of people get paid every two weeks. Pick a day of the week -- say the Monday after payday -- and stick to it.

Assuming no new charges are being added, disregard the amount due on each billing statement and keep sending that set amount. Be sure to write the account number on each check and send the payment to the proper payment address. It's also a good idea to call the credit card company and tell them it's coming.

"It's definitely worth a call," Detweiler says. "Keep a record of it so, if there's a problem, you will have a record that you tried to contact them."

Tell the company
Ask the company what needs to be done to get those "extra" payments processed quickly -- the ones that will not include a payment coupon or arrive in the company's preprinted envelope.

While the Fair Credit Billing Act requires issuers to credit payments the day they are received, each issuer is allowed to set specific payment guidelines. If any of the guidelines are not met, the issuer can take as many as five days to credit the payment. Check the back of the statement for the guidelines.

And though the card companies have up to five days, most process payments quicker than that.

"If you have all the information they need, it's going to be processed fairly quickly," Detweiler says. "You're still going to cut your interest costs even if it does take a few days to credit the account."

As with any pay-down strategy, it's best to avoid new charges. Put new purchases on a different card. Use Bankrate.com's credit card search engine to find the best card for you.

Here's how to launch the pay-down program: First, stop charging on the card and make the normal monthly minimum payment by the due date. Then, two weeks later, send half the amount again, and two weeks later, half again. Repeat the half payments on the two-week schedule until the balance is paid.

"It's an easy way to get the ball rolling," Detweiler says. "And keep the ball rolling."

-- Updated: March 31, 2004