At the beginning of each year, after the holiday season, it is common for people to have two lifestyle concerns: weight and debt. Shedding extra pounds and repaying holiday bills are a priority for many people as evidenced by the high volume of: sales of exercise equipment, enrollments in health clubs, and calls to credit counseling agencies.
This article is about the financial aftermath of the holidays. Do holiday bills have you worried? Do you want to get credit card balances repaid as quickly as possible? If so, you may want to consider a computerized PowerPay debt reduction analysis offered by Rutgers Cooperative Extension. PowerPay calculates the fastest time possible to get out of debt and the time and interest saved by following a debt repayment calendar created by the program.
Making "power payments" is a method to systematically put consumers on the path to being debt free. What are power payments? A power payment is an enhanced payment to a particular creditor. As soon as one debt is totally repaid, the monthly payment from that account is applied to another debt. For example, if you owe eight creditors and one is repaid, the previous payment to the paid off creditor (e.g., $25 to Sears) is added on to the payment sent to one of the remaining seven creditors so that debt repayment is accelerated.
Money from paid off accounts continues to be reallocated to repay other debts at progressively accelerated rates until eventually all debts are paid. The result can be hundreds, even thousands, of dollars saved on interest payments and months or years earlier repayment. Better still, there is no additional monthly cost. A consumer continues to make the same total amount of payments each month. The payments are just reallocated differently as various creditors are repaid.
Rutgers Cooperative Extension's PowerPay computer software program uses the PowerPay principle to save time and money on debt repayment. It is most helpful to those who are able to meet the minimum monthly payments on all debts. It is even more helpful to debtors who have a little extra each month to devote to debt repayment or those who can earmark windfalls, such as tax refunds, for debt repayment.
PowerPay first calculates what the repayment time and interest costs will be if you continue to make payments at current levels. It is sometimes shocking for consumers to see the total interest cost and length of time that it takes to repay debts, especially if they are making only the minimum required payments.
Next, PowerPay calculates the possible savings by using power payments in three different sequences: (1) paying off creditors with the highest interest rate first, (2) paying off creditors with the lowest balance first, or (3) paying off creditors with the shortest term first. Generally, the savings are greatest when high-interest creditors get priority.
PowerPay can also accommodate customized repayment plans such as adding an optional monthly payment when extra funds become available or changing the interest rate in an analysis when low "teaser" rates apply. An analysis can include as many as 30 creditors.
To receive a PowerPay analysis, you need to make a list of all your debts with the total owed, the interest or annual percentage rate (APR), and the monthly payment amount for each. You can obtain an analysis by calling downloading a PowerPay request form on the Rutgers Cooperative Extension Money2000 Web site: www.rce.rutgers.edu/money2000.