Financial freedom means something different for everyone. For some, it's earning passive income. For others, it's getting out of debt. If you're in the latter camp, there's one trick that can smooth out your bumpy journey: paying off debt biweekly.
This simple trick doesn't incur any additional fees. In fact, it saves you tons on interest, regardless of which type of debt you're in.
By now, you know the hard truth of debt in America
In May 2020, CNBC reported that 47 percent of Americans had found themselves in credit card debt.
Meanwhile, in Q3 2020, student loan debt in the nation hit $1.7 trillion. Despite the fact that federal student loan repayments have been stalled during the COVID-19 pandemic, this still hits home for many.
Not all kinds of debt are bad. Mortgages and auto loans are necessary for most people who want to move toward their goals. But interest on any kind of debt can get messy and burdensome, making it literally more difficult to get out of debt than it was to get into it.
How paying off debt biweekly helps you save on interest
Here's the thing. Interest rates on debt incur monthly, and they're based on your premium balance at the time. When you pay off your debt on a monthly basis, you have less opportunity to cut that premium balance down before the insurance rate hits it. The lower your balance, the less you'll owe in interest.
Instead of monthly, you can pay biweekly—or twice per month. Each payment would be half of the monthly total payment, so you're not spending any more than you would otherwise any given month. However, you have one extra chance each month to minimize your premium balance before the interest tacks on.
Because there are about 52 weeks in a year, biweekly payments mean you'll trim your premium balance 26 times in a year. That's equivalent to 13 monthly payments, instead of 12—so you can pay off your debt a lot sooner and spend less on interest in the long run.
Paying off debt biweekly means you're spending about the same each month, but trimming your time horizon
This tactic is especially crucial for debts that carry high interest rates, but even long-term mortgages can see thousands in savings on interest alone. Contact your loan provider and ask if you can set up a biweekly payment plan instead of a monthly payment plan.
For example, if your mortgage costs you $2000 per month, pay $1000 every two weeks instead of the lump sum each month. By year's end, you'll have put $26,000 into your mortgage, which is $2000 more than you would have otherwise.
Another way to save is by paying more than your minimum balance, if you can
Paying the minimum balance due can get you into a lot of trouble with debt, especially high interest rate debt like credit cards. After you've gotten used to paying biweekly, consider upping the payments incrementally.
However, I don't recommend upping the payments for student loan debt once the payments are unfrozen. This is simply due to potentially looming legislation from the executive branch that could trim off some of that excess student loan debt without you having to do a thing (if your fingers are crossed for that one, you're not alone).