1. Negative Amortization: Paying Less Than the Interest Owed
Negative amortization occurs when your minimum monthly payment isn’t enough to cover the interest that accrues. The unpaid portion of the interest is added to your loan balance, meaning the total amount you owe gets larger over time.
Example:
Suppose you owe $50,000 on a student loan at 6% interest. The monthly interest is about $250. If your income-driven repayment plan only requires you to pay $150, the unpaid $100 is added back into your loan. After one year, your balance grows by $1,200, even though you’ve been making payments.
This is one of the most common answers to what increases your total loan balance—especially with student loans.
Pro tip: Programs like the SAVE plan (introduced in 2023 for federal student loans) can help by preventing unpaid interest from ballooning your balance.
2. Forbearance or Deferment: Pausing Payments at a Cost
Forbearance and deferment allow you to pause or reduce loan payments during hardship, but in most cases, interest continues to accrue.
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Mortgages: Forbearance typically lasts 1–6 months. You must later catch up on missed payments.
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Personal loans: Some lenders allow temporary pauses, but interest keeps building.
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Student loans: Deferment can last for years, but most types still accrue interest (except subsidized federal loans).
When the pause ends, your balance is higher than before. Plus, because your loan is now larger, your monthly interest costs also increase.
Tip: Even if you can’t make full payments, try to at least pay the accrued interest each month during deferment. This prevents your balance from growing.
3. Additional Borrowing: Expanding Your Debt Load
Some loans, like home equity lines of credit (HELOCs) or personal lines of credit, allow you to borrow repeatedly up to your credit limit.
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Every time you draw more money, your loan balance rises.
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Interest is charged on the new, higher balance, which increases your repayment costs.
Example: If you open a $30,000 HELOC, borrow $10,000, and then later withdraw another $5,000, your total loan balance becomes $15,000 plus interest.
While flexible, this borrowing behavior is a direct cause of balance growth and a key part of what increases your total loan balance over time.
