Your Payments Barely Cover the Interest
Interest is the main cost of borrowing money. Each of your monthly debt payments covers a certain amount of interest and a certain amount of principal. If most of your payments go toward interest, your balance will only decrease by a small amount each month. For example, if your credit card balance is $1,000 and your interest rate is 18%, your interest amount will be about $15. With a payment of $30, your balance will only drop to $985, not $970 as you might expect, because $15 of your payment was applied to interest charges.
Check a recent copy of your billing statement to see how much of your recent payments was applied to interest versus reducing your principal balance.
There are two ways to tackle this problem. First, you can increase your payment amount so that more money goes toward reducing your balance. Sometimes, paying extra on your loan can push the due date of the next payment instead of reducing the balance, so make sure to specify (on your payment coupon) that the extra payment should be applied to the principal.
Getting a lower interest rate is another option, but it’s not an easy one to implement. In the case of credit cards, that means either requesting a lower interest rate from your credit card issuer or transferring the balance to a credit card with a lower rate. In the case of loans, the only way to get a lower interest rate is to refinance to another loan with a lower interest rate. Your credit history needs to be good enough to qualify for a lower rate. Refinancing is not free; evaluate the costs before making any decisions.
Your Payments Go to Fees
Fees affect your debt repayments in the same way that interest does – they prevent your balance from decreasing even though you are making payments. You can eliminate fees by understanding what charges are being applied to you. Then, you can avoid actions that lead to those fees.
You can avoid late fees by paying the amount due on time each month. Schedule your payments online a few days before your due date, so you have enough time to act if something goes wrong. If your credit card issuer still charges fees for exceeding your credit limit, you can avoid fees by keeping your balance below the limit and checking your available credit before spending. You may be able to waive annual fees by requesting it, but if not, that may be the card you want to pay off first. Transaction fees – such as cash advance fees or balance transfer fees – can be avoided by steering clear of transactions that incur the fees. Cash advances, in particular, are costly because they start accruing interest immediately.
You Are Still Incurring New Debt
If you are still purchasing goods on credit or taking out new loans, your overall debt balance won’t decrease much, if at all. To see greater progress in your payments, you need to stop incurring new debt. This means not making purchases on credit anymore. Transfer any recurring subscription payments to your debit card so that payments are drawn from your checking account and do not affect your credit card payments.
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Pay Only the Minimum
To make greater progress on your debts, you should pay more than the minimum. You can use a strategy to pay down your debts by choosing one debt to pay off quickly and making a large payment toward that debt while only paying the minimum on all other debts. Arrange the debts by interest rate and start with the debt that has the highest interest rate, then move on to the next debt on the list. Then, once you’ve paid off the first debt, apply the same payment strategy to the next debt and so on until all debts are paid off.
Source: https://www.thebalancemoney.com/debt-isnt-decreasing-as-you-pay-960828
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