It is really frustrating to discover that after your making credit card payments for several months that your credit card balance is not really going down. What could be the cause? First, it is important to understand how credit card payments works and how payments are applied to your account; only then will you get a grasp of what is really going on. Here are 4 frustrating reasons your credit card balance is not reducing.
Your Payments Barely Cover Interest | Reasons Your Credit Card Balance Is Not Going Down
As you know, your credit card debt comes with an interest. This is one of the costs of borrowing money. So, every monthly debt payments you make covers a certain amount of interest and a certain amount of principle. If more of your payment is going toward interest, your balance will be going down very slowly each month. That’s why you’re not seeing the exact amount of your payment reflecting on your debt statement.
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 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 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.
Another option that may not not be so easy is to get a lower interest rate. 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 decision.
Your Payments Are Going Towards Fees | Reasons Your Credit Card Balance Is Not Going Down
Another reason your credit card debt is not going down is that your fees may be going to other fees other than interest. Fees affect your debt payoff in a similar way to interest – they keep your balance from going down even though you’re making payments. Eliminate fees by first understanding what fees you’re being charged.
Late fees can be avoided by making your payment on time each month. It’s best to schedule online payments for a few days before your due date.
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 avoided by simply avoiding the transactions that cause the fees. Cash advances are particularly expensive because they begin accruing interest immediately.
You’re Still Creating Debt
Your credit card balance is not going down probably because you’re still creating debt intentionally or unintentionally. 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. For your credit card balance to start going down, 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 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.