So let’s say you have credit card or student loan debt. Each month you get your statement and you pay the minimum amount due. Then the next month you get your statement and again pay the minimum due. After several months of that you look and it seem like your balance is still the exact same. What a lot of people don’t realize is that when they only pay the minimum, most of the payment is going towards paying off the interest that’s accruing each month.

For example, say you have a $25,000 student loan balance and your minimum payment each month is $375. Of that $375 payment, maybe $350 goes towards the interest and $25 goes towards paying down the principal. So when the next month comes your new balance is $24,975.

To start making a dent in your debt and start seeing a difference, you’re going to have to pay more than the minimum payment due. Anything above the minimum payment goes towards the principal balance. If we use the same example above, if you instead made a payment of $400, that would mean that $350 would still go to your principal, but now you have $50 going towards the principal. It might not seem like a huge difference but after some months of chipping away at the principal what you’ll start to notice is the amount of your payment going towards interest will be less. As that amount goes down, the amount going towards your principal will keep going up. Just keep working at it and don’t let it frustrate you.

Are funds pretty tight and you’re having trouble paying more than the minimum? Check out this list of creative ways to make a little side money.

*Black Dollar Bonus*   If you can help it, don’t wait until the due date to pay your bill. The sooner you make your payment, the less you’ll pay in interest in the long run.