Micropayments: Good Things in Small Packages

Should you be paying your bills on a different time-cycle, say, once a day? That’s the idea behind micropayments; i.e. extra payments that can actually reduce your total credit card debt. Here’s how it all works.

The term “micropayments” has its origins in small loans provided by investors to low-income individuals, like a farmer in Malaysia or a fruit-stand operator in New Delhi. Loans of $100 or not uncommon in the micropayment loan world.

To spin a phrase, micropayments in the credit card world can be just as microscopic – even smaller – but are made in more frequent increments.

It works like this. Instead of paying your credit card bill one a month, you can adopt the micropayment strategy and pay your credit card company bi-weekly, weekly or even daily. For example, you can take that extra change you brought back from the grocery store and apply it to your credit card debt. Whatever you can afford - $7.40 or $8.76 – it all can add up by the end of the month, and chances are you won’t even miss the money.

The idea behind micropayments is that instead of facing down a big credit card payment, you can relieve the pain by paying off your card amount in smaller, bite-size chunks.

Execution-wise, you’ll want to avoid snail mail (logistically, sending five or six bills per week might be taxing, not to mention the trips to the post office for stamps). And don’t pay your bill by phone. Chances are your card issuer has subcontracted out its phone payment operations, and over-the-phone payment fee of $5 or $10 is not uncommon. Best bet: go online and pay your bill at your card issuer’s Web site. Most offer no-fee deals for paying on line.

Here are some specific strategies to using credit card micropayments:

Cut your bill by paying more often. Get paid bi-weekly – or even weekly? Take a small portion of your check and apply it to your card balance. Much like a biweekly mortgage payment, that means 26 payments if you pay twice per month – or 13 monthly payments. By paying monthly, you’re only making 12 payments. And that’s more money toward minimizing your card debt.

Eat at home and pay your card bill with the difference. Instead of eating out tonight, apply the $25 or so for dinner to your credit card bill via a micropayment. If you can do this three times a month, that’s $75 or so toward paying down your credit card debt. Key move: don’t wait to use the dinner money to make your micropayment – make it a habit to make the payment online the same night – right after a nice dinner at home.

Check with your card carrier.
While the major carriers usually allow multiple payments, rules do vary. American Express (Stock Quote: AXP) allows online payments once a day. But Citi (Stock Quote: C) only allows four payments per month – and only one every 24 hours. Check with your card issuer to be sure.

Human nature being what it is, you are more likely to spend money that’s in your wallet – or even in your bank account – that you would after just paying off an even small portion of your credit card bill.

Perhaps that’s the best benefit from micropayments – it has the power of turning your from a spender into a saver. Maybe even into a micro-bank depositor.

—For a comprehensive credit report, visit the manybanking.com Credit Center.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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