Debt can be a real drag. But it’s even worse when you’re not seeing any progress as you try to pay down your debt. These are four reasons why your debt isn’t decreasing despite your best efforts.
Your Interest Rates Are High
Interest rates are one of the most important factors to consider when evaluating your debt. When you owe money, higher interest rates mean you’re going to have to pay back more money that you didn’t actually borrow in the first place.
Certain kinds of debt are notorious for coming with higher levels of interest. Credit cards, for instance, are one of the most common forms of high-interest debt. It’s common for credit cards to come with an annual percentage rate (APR) in the mid to high teens.
People with poor credit will typically have to deal with higher interest rates. This is a way for lenders to hedge against the greater likelihood that someone with lower credit might not pay them back. Having an interest rate above 20 percent can make it really difficult to pay down that debt, especially if it’s relatively large.
You Have Too Much Debt
The amount you owe is another determining factor in how well you’re able to pay down your debt. More debt means more money you need to pay back. When you reach a certain point, nothing beyond getting more money will allow you to actually get your debt to start going down. It’s wise to look at debt repayment strategies if you have a large amount of debt over several accounts.
Although you wouldn’t expect it, studies have shown that paying off your smallest debts first, regardless of interest rate, is the most effective route for getting out of debt on your own. This is also known as the snowball method. The psychological benefit behind those early wins helps people go on to tackle their larger debts.
You Haven’t Tried Debt Relief
When the previous factors are making your debt unmanageable for you, it’s not going to help to continue flailing at it. This might just lead to you ending up with even more debt, and in an increasingly worse position.
When you’re not seeing your debt decrease despite your best efforts, it’s probably time to start thinking about your debt relief options. Here are four strategies to consider:
- Debt management: You make a single monthly payment to a credit counseling agency; they disperse your funds to creditors. In exchange you may get lower interest rates and a reduction in fees.
- Debt consolidation: You take out a loan to wipe out all your high-interest debts at once. Then you repay that loan at a lower interest rate over time.
- Refinancing: With this you can take out a new loan to pay and replace your existing one with more favorable terms. When refinancing your home, a 30-year fixed refinance rate, for example, has lower interest rate, smaller monthly payment, and rate stability as compared to adjustable-rate mortgages.
- Debt settlement: You enroll in a program like Freedom Debt Relief and make monthly payments into a special account. When you’ve saved enough, negotiators contact your creditors and try to reach a lower settlement. This can benefit both sides, as lenders want to get repaid at least partially for the money owed to them.
Which strategy you choose hinges on how much debt you have, your credit score and other factors.
Your Income Is Too Low or Expenses Are Too High
Sometimes debt is just too great a burden for your current income level. There are certain things—like food, shelter, utilities, and insurance—that you need to have. If you’re finding yourself with little or no money after paying for these things, you’re going to have a hard time paying down debt.
Boosting your income or lowering your expenses might be necessary to reduce your debt. These things are of course easier said than done. However, there are a few things you can consider when trying to do both things.
It’s always wise to talk to a credit counselor when you’re dealing with debt. They can give you some really helpful advice for how to best approach your loans. Credit counselors also provide budgeting advice, which can be crucial information for people spending too much.
If you need to raise your income, one of these options might work for you:
- Ask for a raise or promotion at work
- Consider getting a job that pays more
- Take on a side job
- Sell unused items to generate instant cash flow
While people with significant debt might need to use more than one of these strategies, it’s worth it to start reducing your debt.
It’s challenging to pay money towards your debts each month only to see the balance stay the same, or even increase. If you’re in this boat, it’s time to regain control of your finances.