Every Penny Counts When Paying Off Debt

Does it feel like you’ll never get out of debt? Learn how every penny counts when you’re paying off debt and how to pay off your debt faster.

How many times have you walked out into the parking lot of a supermarket and spotted a penny on the ground? Plenty of times, no doubt. You might bend over to pick one up if you see Lincoln staring at you, but for the most part, you just keep walking by.

I mean, after all, with the cost of inflation over the years, what is a penny worth? It isn’t worth that much as far as buying something tangible like a television, is it? What will a penny add toward that purchase (besides one cent)?

I remember when, for a penny, you could get a gumball. My father can remember going to the movies for pennies. Now, people leave their pennies at the counter of the convenience store to help the next person balance their transaction. And why? So they don’t have to get any pennies in their change!

My point is that the penny doesn’t seem to have much value, but it certainly has value when you’re dealing with your loans.

When it comes to debt repayment, a penny can mean a lot. Applying one extra cent to each payment can significantly affect how much you repay over time.

Let’s walk through an example demonstrating exactly how valuable the penny can be.

The example loan is $10,000 at 18% and you’re making monthly payments of $150.

Question: How long does it take to repay this loan?

Answer: You can never repay that loan by making payments of $150 per month. No matter how many payments you make, you will always owe $10,000. Why? The amount of monthly interest is exactly equal to how much you’re paying. That monthly interest fee is $150 ($10,000 x 0.18/12). You’ll never owe any more than $10,000, but you’ll never be able to pay off the loan.

Next question: What happens if you add just one penny to that payment? Just one cent? That’s right, now the payment becomes a big $150.01. Now, how long will it take to pay back that loan?

Answer: It takes 53 years, 10 months! Okay, that’s a lifetime for some people, or at least half a lifetime. Now, because of that one penny, instead of paying $150 for eternity, the loan is eventually paid off.

Related: What Does My Debt Cost Me?

Okay, so you don’t want to be in debt for almost 54 years. What can you do? You guessed it. Add another penny. So here’s the next question:

Question: How much do you save by making payments of $150.02?

Answer: It now takes exactly 50 years to pay back the loan! That extra penny knocked almost 4 years off the payback time of the loan. How much money did that extra penny save? Let’s see. The out-of-pocket cost of the first loan is $150.01 for 53 years, 10 months. That comes to a total repayment of $96,884.72 (the last payment is less than $150.01).

With the extra penny, payments of $150.02 for 50 years, it costs a total of $89,907.69. That’s a savings of $6,977.03! Quite a bit saved just for adding a single penny.

Think about this. By increasing the payment from $150.01 to $150.02, you are adding one cent for 50 years. Well, 50 years is 600 months (600 extra pennies) or an out-of-pocket increase of just $6 throughout that time to save $6,977.03 in the end. I think that’s pretty neat.

Okay, I hear the arguments mounting. “But Scott, that’s a crazy example. Who’s going to get a loan for 54 years?”

Ok, no one is going to get a 54-year loan. But many people pay far more in interest than they need to be. How? By only making the minimum payment each month.

Remember, the bottom line is the more you can pay back early on, the more you can save in the end. So the next time you see a penny lying in the road somewhere, you may want to think twice before passing it by.

Related:

• Getting Out of Credit Card Debt When You Can Only Pay the Minimums
• Paying Down Credit Card Debt Faster
• Guidelines for Calculating and Budgeting Debt Repayment
• How Do I Determine the Most Effective Payoff Order of My Debts?

About the Author

Scott Bilker is the founder of DebtSmart.com and the author of Talk Your Way Out of Credit Card Debt!, Credit Card & Debt Management: A Step-By-Step How-To Guide for Organizing Debt & Saving Money on Interest Payments, and How to Be More Credit Card and Debt Smart.

Reviewed March 2024