If you have a financial plan that is aimed at getting you out of debt a lot faster, trying other ways to repay that debt could be a valuable strategy. The possible benefits of making weekly payment instead of the usual monthly payments depend on your type of debt as well as how the interest is being calculated. For someone who is paid weekly, choosing to make weekly debt payments is easier for you and it helps you maintain your payments up-to-date.
By making frequent, yet smaller payments on debts will help you repay them more quickly. Weekly payments in place of monthly will also assist you to budget your money, especially if you always get weekly or bi-weekly paychecks. Use a specific amount from each check for the payments so that you won’t have to save up a chunk to pay on month end. Arrange for your weekly payments to be deducted automatically from your account, that way you don’t have to spend much on postage
By having an official capping on monthly interest charged by accredited moneylenders to 4% since the beginning of October 2015, a lot of these credit companies now have switched their contracts to weekly instead of monthly. This they have done so that they can go around the law and still cover for their losses through interest income. Below are some things you need to know about weekly and monthly loan contracts.
Weekly VS Monthly How It Works
Bi-weekly isn’t the similar to twice a month. The year has 52 weeks, meaning that using a biweekly payment plan; you will have to make 26 payments each year. But, the year has only 12 months, and if you are making 2 payments every month, you will only make 24 payments each year.
With making payments each week, you will actually be paying an extra loan payment every year. Therefore, when your payment is $1,200 each month, you will pay $14,400 per year using the monthly payments plan. When you make your payments each week, you will end up paying $15,600 in a year.
Types Of Interest On Debt
Rates charged on your debts are calculated either daily or monthly. Fixed payment loans such as home mortgages or car loans work out their interest monthly. The interest you pay each month is computed on the outstanding balance after the past month’s payment is received by your moneylender.
Revolving debt like credit cards or some credit lines calculates interest every day. Interest is computed every day on the principal balance of your loan. Payments made early or late in this billing cycle for this type of debts affects your interest charge on your next statement. Payments made earlier reduce the calculating interest.
Smaller, More Regular Payments
When you split your monthly payment by 4 and pay them each week to total four payments for the month on your fixed loan payment, the interest charged for the following month won’t different than if you were to make one payment prior to the due date. When you make weekly payments on revolving credit debt, interest charged for the following month will have reduced than when you make one payment right before the debt due date. For debt on your credit cards, smaller interest charges mean that the lowest payment for the following month will be a little lower.
Tip: Provided that there are no pre-payment penalties, you can make weekly payments instead of monthly for your personal loan, starting with credit card debt to the home mortgage.
Advantages Of Weekly Payments
Weekly payments lessen your debt quicker than monthly payments when you make the payment each week in a year; this equals to 52 payments. When you divide the monthly payment by 4, it will take 48 weekly payments for you to cover the annual payments. But when you pay that same loan amount weekly, the additional 4 payments every year go straight to reducing your personal loan balance.
The result is equivalent to making 13 monthly payments in a year, thus shortening the time needed for you to repay the personal loan.
Pay Down Credit Cards Debt Faster
When you plan to pay your credit cards debt on weekly basis, the idea is to quickly pay down the outstanding balance yet keep the weekly payments to be equal. Every month your lowest payment will reduce, but you need to keep making payments at the same rate each weekly. Do not reduce your weekly payments to a new payment amount divided by 4. After several months, you will notice that your credit card balances begin to reduce at a much faster rate than if you were paying close to or at the lowest payment rate.
Do You Have to Split Your Monthly Payments?
When you begin paying back the personal loan payments, on long-term loans like mortgages the bulk of your payments for each month will be of interest. The bigger your loan balance is, the more the interest you have to pay. As you pay down your principle, the interest payments will also decrease, and the fraction of your loan payments will change towards paying more of the principle in each month.
One well-liked way that a few homeowners and other borrowers use to pay down their principle much quicker is by making biweekly payments. This is in place for making single monthly payment; they opt to pay half the payment two times in a month. You may have to find out from your moneylender whether they even allow biweekly payments, and if they charge a penalty when the loan is paid off early.
By making frequent, yet smaller payments on debts will help you repay them more quickly. The official capping on monthly interest charged by accredited moneylenders to 4% has meant that a lot of credit companies now have to switch their contracts to weekly instead of monthly.
Weekly payments decrease your debt quicker than monthly payments when you strictly make the payment each week in a year. Before settling for either weekly or monthly payments, look carefully at whether they can help you save some amount in payment.