Debt management can be extremely tricky if you don’t have any know-how of the financial details. But there is a philosophy behind it for every lay-person. You pay off a debt, you get better credit score and your debt balance goes down. But often this does not correlate with the reality. You may be faithfully making your monthly payments on your credit cards and other debts each month, but it seems like your balances aren’t budging. This can make you feel like giving up. Let’s understand why your balance isn’t going down and help you change your payments so that your account actually goes down.
High Interest Repayment
Each of monthly debt payments covers certain amounts of interest and principle respectively. If more of interest is getting repaid, balance will only go down a small amount each month. Check the billing statement to see how much interest was repaid. There are two ways to combat this problem. First, you can increase your payment amount so that more money goes toward reducing your balance. Getting a lower interest rate is another option, but not one that’s as easy to execute.
Fees affect your debt payoff in a similar way to interest. Eliminate fees by first understanding what fees you’re being charged. Then you can avoid the actions that trigger fees. Fees can be late fees or exceeding credit limit fees. You may be able to get your annual fee waived by request. Transaction fees can be avoided by simply avoiding transactions.
More Debt Creation
To see more progress with your payments, you have to stop creating new debt. That means, no more credit card purchases. Move any recurring subscription payments to your debit card so these payments come from your checking account and don’t offset your credit card payments.
To make more significant progress on your debt, you need to pay more than the minimum. Pick one debt to pay off quickly and pay a lump sum towards it while paying just the minimum on all your other debts. Then, apply the same payment strategy to the next debt and the next until they’re all repaid.
These are all reasons and strategies that will help you understand your debt financials and increase your credit score. Head on to Solution2Debt for more sound financial advice because we truly care!