This important, powerful principle works for you by lowering the principal of the debt. The lowering of the principal reduces the interest that will eventually be computed on that principal. Everything good happens when you make extra payments. Even if you only make one extra payment per year, it will have a positive affect on your debt management plan.

The principle works whether you are paying an extra payment on a mortgage or on credit card debt. The principle remains the same. If you lower the principal on which interest is computed, the interest computed on that debt has to go down. That is the power of a power payment.

Once the principle has been eliminated and the interest stopped, an individual can convert those payments to earning interest rather than paying interest. This is the #1 principle of achieving wealth — collect interest, don’t pay it! That is how those with wealth accumulate even greater wealth. It all begins with getting rid of your existing debt.

Along with power payments the concept of rolling-up your payments can be implemented to help pay off your debt quicker. With roll-up, your debts will pay off much faster than if paid by making normal monthly payments. To realize the full benefit of the debt management program, monthly payments should remain the same (or increase) until the last creditor is paid in full. As each of the smaller creditors is paid off, the creditor with the next smallest balance receives the additional payment, thus decreasing both the amount of interest paid to creditors as well as the time it takes to become debt-free.

A few common examples of mortgage power payments are biweekly and bimonthly payments. Of the two, the benefits of biweekly payments far exceed the benefits of bimonthly or semimonthly payments. With biweekly payments, you pay half of the monthly mortgage payment every 2 weeks and with bimonthly payments you pay half of the monthly payment twice per month (on the 1st and 15th for example) rather than the full balance once a month. A biweekly payment is comparable to 13 monthly payments a year, which will result in accelerated payoff of your mortgage and lower overall interest costs. For example, the biweekly mortgage payment program can pay off a $200,000 30-year fixed loan at 7% interest in approximately 24 years, which is 75 months sooner than a standard payment plan, resulting in an interest savings of $68,925.

To set up a true biweekly or simple interest biweekly payment schedule, you must

o Have a lender that will immediately credit each 1/2 monthly payment upon receipt.
o The lender must calculate interest for two-week intervals and apply the biweekly payments, less the interest, to reduce the total principal owed every two weeks.

There are several different methods for determining the most effective application of power payments, although the principle remains unchanged. It is essential to reduce the total principal owed in order to decrease the total interest to be paid and accelerate the reduction of debt. The first step is to identify where you will find the necessary cash resources to be used for power payments, which often requires significant planning and will undoubtedly require considerable sacrifice. One of the first places to start is in the creation of a family budget to help identify how much money you have and where it is going. Reviewing your spending habits will help you re-prioritize your spending and show you how to create a tremendous amount of extra cash resources.