When it comes to repaying credit card debt, it can sometimes feel like you’re just spinning your wheels and not making any progress. You make your payments, you pay the interest, but you’re barely making a dent in your total outstanding balance. This is what happens when you only make the minimum payments each month. The best way to break this cycle and reduce credit card debt faster is to increase what you pay.
Why Minimum Payments Don’t Work
Most of a minimum monthly payment goes towards interest. That’s essentially the cost of using credit. Very little of your payment goes toward paying down your actual balance. You will not get out of debt in a reasonable amount of time by making minimum monthly payments. The only way to improve your chances of eliminating debt faster is to apply more money to your outstanding balance, which requires making larger than minimum payments.
To illustrate, check out ACCC’s Debt Payoff Calculator. Simply enter your payment details, and the calculator will show you how much interest you’ll pay, and how long it will take to pay off the debt. You can also enter how much extra you will add each month to see the difference it will make. You’ll find that paying more than the minimum will reduce the time and cost of getting rid of debt.
Making adjustments to your budget and cutting back spending on unnecessary items is critical. Apply as much as you can afford towards repaying your credit card debt. Try using a budgeting worksheet to see where cuts can be made to increase how much goes toward credit card payments each month.
Improving your debt management strategy will raise your credit score and make achieving other financial goals easier.
Need more help with budgeting and debt management? Contact American Consumer Credit Counseling to speak with a certified counselor today for free. Call 800-769-3571.