Do you realize that if you owe $5,600 on a credit card with a 18% interest rate, and you only make $100 payment each month that you will owe on this account for 124 months and pay a total of $6,708.54 in principle and and paying 54.5031% of interest for the payment?
Real examples are usually the best tool to demonstrate a theory. Let’s take few examples:
You have 3 debts:
- Home Loan
- Credit Card
- Car Loan
Home loan has an amount of $36,000 with 14% of interest rate, $3500 for the credit card with 18% of interest and $21,000 for the car loan with 10% of interest.
Most people unfortunately, do not calculate interest on their debts correctly. They simply follow the debt period/time and payoff their debts without having a clear understanding of what is really happening behind the scenes.
You will learn how to calculate interest on your debts and how to create a payment plan to avoid huge interest rates and as a result cut down your debts and eventually becoming debt free.
For starters, take your calculator, have a piece of paper and follow along with these examples and you will notice how drastically you can cut down your interests and save time and money!
Let’s summarize these debts:
Summary for your current debts:
- $60,500 is the total amount of the debts we have. ($36,000 + $3,500 + $21,000)
- 12.8% is the interest rate we are paying. (Weighted average for 14%, 18% and 10%)
- $850 is your current monthly payment. ($500 + $100 + $250)
- $647.50 is the amount of interest you are paying each month. ($60,500 x 12.842% / 12)
- 76.1% is the percent of your monthly payments on all your debts.
If you continue to make the current minimum payments on all your debts, you will be in debt for:
13 years and 2 months
During this time you will pay a total of $59,766.10 in interest which is 98.7% of your current debt!
Can you imagine this huge number! 98.7% of interest!!!
This is the current debt status; this is the nightmare if you do not follow a debt free plan. Shocking numbers!
- Your Home loan needs 13 years and 2 months to be paid off
- Your Car loan needs 12 years and 2 months to be paid off.
- Your Credit card needs 4 years and 3 months to be paid off.
Total: $60,500
Interest: $59,766.10
Can you imagine paying interest in approximately the same amount you borrowed in the first place? Unbelievable!
By creating a debt repayment plan, you slash the amount of interest you’ll pay and the time required to pay it back which you will learn how to do so stay tuned.
Tags: calculate interest, debt advice, Debt Help, debt repayment