Paying Down Debt Weekly Vs. Monthly

If your financial plan includes getting out of debt faster, trying alternative ways to pay off that debt may be a useful strategy. The potential benefits of paying weekly instead of monthly depends on the type of debt and how the interest is calculated. If you are paid weekly, making weekly debt payments makes it easier for you to keep current on your payments.

Types of Debt Interest

The interest on your debt is calculated either monthly or daily. Fixed payment loans like home mortgages and car loans calculate interest monthly. The interest paid each month is calculated on the principal balance after the previous month's payment has been received by the lender.

Revolving debt such as credit cards and some lines of credit calculate interest daily. Interest is calculated each day on the outstanding balance of the loan. Making the payment early or late in the billing cycle with this type of debt affects the interest charge on the next statement. Earlier payments reduce the calculated interest.

Smaller, More Frequent Payments

If you divide the monthly payment by four and make a payment each week for four payments in a month on a fixed payment loan, the interest calculated for the next month will be no different from making one payment before the due date.

If you make the weekly payments on a revolving credit debt, the interest charge for the next month will be less than if you made a single payment just before the due date. For credit cards, a smaller interest charge means the minimum payment for the next month will be slightly lower.

Benefits of Weekly Payments

Weekly debt payments reduce your debt faster than monthly payments if you make a payment every week of the year, which equates to 52 payments. If you take the monthly payment and divide it by four, it takes 48 weekly payments to cover the payments for a year.

If you pay that same amount weekly, the extra four payments each year go directly to reduce your loan balance. The effect is the same as making 13 monthly payments during the year, shortening the amount of time needed to pay off the loan.

Pay Down Credit Cards Faster

If you want to pay your credit cards on a weekly basis, the key to rapidly paying down the balance is to keep the weekly payment at the same level. Each month your minimum payment will go down, but you should keep paying at the same weekly rate.

Do not lower your weekly payment to the new payment divided by four. After a period of several months, you will see your card balances start to decline at a much quicker rate than when you were paying at or close to the minimum payment.

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