If you are looking to get out of debt and start saving money towards a better financial future, then one of the first things you may want to do is to assess your current debt situation. If you have credit card debt, student loan debt, or even owe money on a loan, there is a good chance that you find yourself only making the minimum payments on that debt each month. After all, if the creditor only asks for a minimum payment, why give them more than you need to? However, what many people do not realize is just how detrimental making the minimum payment can be not only to your credit, but to your financial future as well.
When you make the minimum payment on anything, you may avoid late fees and penalties, but the fact of the matter is that you still accrue interest on the debt. In fact, you accrue more interest because you have a larger debt balance than you would if you were to make more than the minimum payment. Not only do you end up accruing more interest this way, but you also end up taking longer to pay off the debt in its entirety. After all, making the minimum payment often only covers the interest on the debt, plus maybe a small portion of the principal. In this sense, even by making timely monthly payments, you could still barely be paying the actual principal of the loan off.
Another reason to avoid making the minimum payment on your debt is the fact that doing so can negatively impact your credit score. Instead, it is recommended that you pay as much as possible on a debt each month to build up your credit score. For example, if you have recently received a credit card, only charge what you know you will be able to pay off in full at the end of the month. This way, you can build your credit without overwhelming yourself in the process.
Overall, making only the minimum payment on a debt can cost you thousands of dollars more over time and can leave you stuck in debt forever. Instead, it is recommended that you pay off as much as you comfortably can, while you can, on every debt. This way, you can work towards becoming debt-free and begin saving money to live a more financially stable life as well.