Back in April I calculated how much money we were spending in interest on debt each month. I highly recommend you do it too – NOW. This post is my 6 month update to see how much less interest we’re paying now.
I was encouraged to write this “interest paid update” after reading that Matt Breed of FinancialMethods.com found calculating how much interest he was paying was also one of his great motivators. He agreed – as everyone seems to once they run this simple calculation – that figuring out exactly how much money you pay others in interest every month is one of the best motivators to help you move against your debt. Way to go Matt.
My Debt Costs Me $58 Less Now!
If you want to take a truly sobering look at just how much your debt really costs you, follow this simple guide to figure out what your monthly interest amount paid is. Once you complete the exercise you will have finally developed a proper relationship between you & your debt!
What I mean by Interest & How Destructive it is…
While there are several definitions of “interest”, for the purpose of this article we focus on the interest amount paid toward our debts and will define interest as a fee paid on borrowed assets; and/or the price paid for the use of borrowed money.
Simply put, interest destroys your ability to build wealth by taking your hard earned money and misappropriating it toward paying rich people (the people who loaned you the money.) I will demonstrate this fact by listing my interest amount paid from last month (March of 2009).
How Much Interest I Pay Each Month – compared to 6 months ago…
So here is my favorite part of the post because this is where I report how much less interest I am paying out now than I was six months ago. I have actually included both amounts side-by-side for easy comparison. Enjoy the interest shrinkage… I know I did!
I am paying $58 less interest to banks than I was 6 months ago! YES!
As you can see, I saved the largest amount by consolidating my debt through Lending Club. I consolidated my debt for two reasons: to simplify monthly payments, and to save money on interest payments. Well… it worked.
So what’s my advice? If you have high interest credit card or auto loan debt… consolidate it through Lending Club to save!
How I Arrived at the Above Amounts…
Follow these simple steps to find out your monthly interest amount paid:
- Write down a list of all your loan amounts including your mortgages, student loans, auto loans, credit cards, etc.
- Either look at the statement each account mailed you last month, or log into their associated web sites to find the amount of interest (a.k.a. finance charge) you paid over the past month.
- Write down the numbers you find above next to the associated accounts
- Calculate your very own monthly interest amount paid.
After completing the above steps, you will most likely be filled with anger! I was.
Anger Toward Debt Grows…
Going through the exercise of calculating your interest amounts paid on all debts shows you exactly how much money you pay to bankers each month. Does that make you angry? It should. The goal is to eventually make that money work for you instead of banks.
Seeing these numbers gives real meaning to Proverbs 22:7, “The rich ruleth over the poor, and the borrower is servant to the lender.”
Motivation and Encouragement to pay down debt faster…
This step is simple but crucial. If this is your first time calculating your interest amounts paid, don’t allow yourself to slip into the trap of becoming overwhelmed. Realize that you can turn this around, but you must stand up and fight. You must take control of your own financial destiny. You must work toward your own financial freedom.
Becoming overwhelmed will paralyze you, so instead focus on the fact that a journey of a thousand miles begins with a single step and start stepping now!
Real Steps to Reduce, Lower, and Eliminate Interest & Debt…
By using a focused, goal oriented approach, I was able to lower my monthly interest amount paid by $58/month in six short months. I will use this as motivation and will continue to keep track of how much I reduce my interest amount paid each month. You should do the same.
- Hold on to the list of interest amounts paid you formulated above.
- Call each creditor & attempt to get your interest rate lowered. This can give you a HUGE jump start in lowering that initial amount. DO NOT skip this step!
- Each & every month record the interest amount paid for each debt.
- Calculate your total interest amount paid every month.
- Track your progress by listing your lowered amounts.
- Place these monthly amounts somewhere you can see them every day, like your refrigerator.
- Balance your focus by paying off both small debts & high interest debts. I use both methods in tandem.
- Some would say reward yourself once a month by treating yourself to something you want, but for me the lowered amount of interest I’m paying is reward enough. Use what works for you.
The more we eliminate our interest amount paid each month, the more we can use toward paying ourselves. So what are you waiting for? Get started ASAP.
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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.
photo credit to Éamonn
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