Why minimum payments don't work for debt reduction

smash your debts May 23, 2022

The banks will only ever tell you what your minimum payment is on the loan they give you.

Because they want your loan to make them as much money as it can. 
If they tell you that your minimum payment is $200 per month, and that's all you pay, they they will be able to charge you interest for the full amount of the loan term.

But if you pay it off quicker, then you pay less interest overall and the bank loses out.  Really.  They want to win, they want you to lose.

They don't want you to have more money.  They want you to be stuck in a borrow and pay off cycle, so that you keep paying more interest.

But if you want to beat the bank, you have to do things differently.

First - start by paying off more than just the minimum payment.  If this is not achievable for you then you are in too much debt and may need to renegotiate all of your debts so that it can be achievable.

For most of us with double income, it just means making a few tweaks to what we are doing, and maybe a couple of months of reducing our spending so that we can get into better smashing debts habits.

Look at reducing some of your wasteful spending and allocate it directly towards the debt - the easiest way is to look at what you are spending in subscriptions and direct debits, especially the things you aren't using.  Cut them out and see how much extra you can pay off your debts.

Then consider using the Money Smart website to set a goal.  It's so much more fun to know that you could pay off a 5 year loan in 4 years if you can see the graph.


The compare alternative section allows you to add in a comparison payment amount, and will show a graph to show you how quickly it can be paid off.


I use this function every 6 months or so to make sure I am on track with paying off debt (there is also a credit card and a mortgage calculator too, that work in the same way).

Once you have found the extra cash and are making more than the minimum payments, then you can look towards smashing down your debts further by allocating ay "spare" money to the debts.

Come and see what the facebook group is all about, get more tips and join in the conversation.

Facebook group

Stop wasting money today!

It's time to have more fun with your money.

The More Money Challenge allows you to:
- know where your money goes
 - prioritise your spending
 - have better conversations with your partner about money

Download the guide to get started now!

We hate SPAM. We will never sell your information, for any reason.