Why Your Debt Isn't Going Down Even Though You're Making Payments

A frustrated man reads bills
© JGI/Jamie Grill / Blend Images / Getty

You’re faithfully making your monthly payments on your credit cards and other debts each month, but it seems like your balances aren’t budging. Why is this happening?

Your Payments Barely Cover Interest

Interest is one of the costs of borrowing money. Each of your monthly debt payments covers a certain amount of interest and a certain amount of principle. If more of your payment is going toward interest, your balance will only inch down.

For example, if your credit card balance is $1,000 and your interest rate is 18%, your finance charge will be about $13. With a payment of $30, your balance will only down to $983 not $970 as you might expect, because $13 of your payment was applied to the finance charge.

Check a recent copy of a billing statement to see how much of your last payment was applied to interest versus reducing your balance.

There are two ways to combat this problem. First, you can increase your payment amount so that more money can be applied to reducing your balance. Sometimes paying extra on your loan will advance your next due date instead of reducing the balance so make sure to indicate (on your payment coupon) that the extra payment should be applied to principle.

Getting a lower interest rate is another option, but not one that's as easy to execute. With credit cards, this means either asking your credit card issuer for a lower rate or transferring the balance to a low interest rate credit card.

With loans, the only way to get a lower interest rate is to refinance into another loan with a lower interest rate. Your credit history must be good enough to qualify for a lower rate. Refinancing isn't free; weigh the costs before making a move.

Your Payments Are Going Towards Fees

Fees affect your debt payoff in a similar way to interest – they keep you from reducing your balance even though you’re making payments.

Eliminate fees by first understanding what fees you’re being charged and then avoiding the actions that trigger fees.

  • Late fees can be avoided by making your payment on time each month. Schedule online payments for a few days before your due date so you have time to react if something goes wrong.
  • If your credit card issuer still charges a fee for exceeding your credit limit, you can avoid the fee by paying your balance below the limit and checking your available credit before spending.
  • You may be able to get your annual fee waived just by asking, but if not, this may be the card you want to pay off first.
  • Transactional fees - like cash advance or balance transfer fees - can be avoiding by simply avoiding the transactions that case the fees. Cash advances are particularly expensive because they begin accruing interest immediately.

You’re Still Creating Debt

If you’re still making credit card purchases or taking out loans, your overall debt balance won’t go down by much, if it goes down at all. 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.

You’re Only Paying The Minimum

To make more significant progress on your debt, you need to pay more than the minimum. One strategy you can use to pay your debt is to pick a debt to pay off quickly and pay a lump sum towards that debt while paying just the minimum on all your other debts. Then, once you’ve paid off the first debt, apply the same payment strategy to the next debt and the next until they’re all repaid.