How much Interest are YOU Paying? Get Mad at Debt!

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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:

  1. Write down a list of all your loan amounts including your mortgages, student loans, auto loans, credit cards, etc.
  2. 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.
  3. Write down the numbers you find above next to the associated accounts
  4. 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.

  1. Hold on to the list of interest amounts paid you formulated above.
  2. 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!
  3. Each & every month record the interest amount paid for each debt.
  4. Calculate your total interest amount paid every month.
  5. Track your progress by listing your lowered amounts.
  6. Place these monthly amounts somewhere you can see them every day, like your refrigerator.
  7. Balance your focus by paying off both small debts & high interest debts.  I use both methods in tandem.
  8. 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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1 Lydia aka Ms. MoneyChat

Again, I’m right there with you. A few years ago I was taking a real estate investing class (luckily taught by someone who believed in being debt free) and she gave us a homework assignment to calculate the interest we were paying each month. She actually referred to the interest as a patience penalty. hahahaha. After completing the assignment, I was very motivated to eliminate the debt. The experience was truly a turning point for me in my quest for financial freedom. Now, the only interest I pay each month is approximately $560 on my mortgage. I’m soooo looking forward to the day when even that is zero.

Operation pay off my mortgage is on hold since I’ve recently had a career change, but it’s still at the top of the priority list. Hopefully I can put it back into action within the next 6 months.

2 Kelly Whalen

I really need to do this. Would be great motivation!

3 Matt SF

Excellent presentation of commonly overlooked problem. I would bet a majority of credit users are relatively unaware of the amount of money they pay in financial company profits versus how much they’re paying down their debt.

4 Matt Jabs

Oh you bet. Get this…

When we pay the minimum on our 2nd mortgage, only 8% of our payment goes toward principle! The other 92% goes straight into some fat cats pocket. OH MAN that makes me mad!

So we pay double principle on this loan, which makes me feel better. I can’t wait until this is the focus of my snowball. Grrrrrrr

5 David @ Money Under 30

You’ve nailed down an incredible way to look at your debt that can really inspire you to get out faster when you realize that you’re just throwing that money away.

At one point I calculated I was paying several hundred dollars in interest every month on my debt and…this is really scary…I once figured out that my credit card debt had cost me about $15,000 in interest over several years. That’s right $15,000. Wasted. Gone. Good-bye.

If that isn’t reason to never go into debt again, I don’t know what is!

6 Matt Jabs

Oh my word David, that is crazy.

Another awesome question to ponder would be… how much money does the average American pay in interest over their lifetime?

7 Lakita

How are you paying yourself with your saved interest? Debt Snowball, savings, etc?

8 Matt Jabs

You asked the million dollar question Lakita! Way to go. You are the winner of… well, how’s a pat on the back sound? ;-)

Here is a post I wrote that details how we need to Follow Through Financially

With this particular $58 dollars I am rolling into my debt snowball. It is going straight for the throat of that Lending Club loan!

9 Craig

that’s huge, now you have more money to save, and hopefully could even lower the debt more. That’s big progress in 6 months, congrats.

10 RainyDaySaver

With a brand-new mortgage, our interest on that alone is $1200 (even with a “low” 5% interest rate)! We’ve been throwing a little bit more at the principal each month to knock that out. Other than that, we’re “only” paying $25/month on credit card interest thanks to a 1.99% balance transfer rate, but that’s 25 bucks that could be in our savings account.

Great exercise.

11 JerryB

RDS,
Is that 1.99% a permanent rate or introductory? If it’s scheduled to go up in the future I would suggest calculating how much you need to pay each month to have it paid off before it goes up. Even if that mean not paying a little extra on the house note.

Jerry
$29,067.68 to total debt freedom

12 Financial Samurai

Great work Matt! Get angry at that debt and soon it will be no more. You have the right process going. It’s only a matter of time when you will have NADA, ZIPPO debt!!

Best, FS

13 Matt Jabs

Thanks FS. Honestly, I told my wife to night… with our plan in place, I already feel like I’m debt free. Now it’s just a matter of time & patience. :-)

14 Samantha Porter

Since the very first mortgage payment, my husband and I threw extra money at our mortgage to go directly to principle. We will be making our third year anniversary payment this year on December 1st and guess what? We are actually ahead by 6 years on our mortgage. If you go to any financial website that calculates amortization tables, plug in your loan amount, interest and starting date of the loan. Look at the table and see where you’re at in terms of the amount of principle you still owe. Since we have paid a little bit extra every month for three years we have beaten down the principle to where we would be in 9 years if we just made the regular payment!!!!!

When we signed for our loan, the disclosure document said that we would pay over $400,000 in interest over the life of the 30 year loan. I told my husband right in front of the loan processor that we’ll never pay that amount and be paid off in 9 to 12 years. Her expression was one of utter confusion.

Sheckles are shackles – Ben Franklin

15 Matt Jabs

Awesome Samantha!

This amazing life of utter freedom from ALL debt that is befalling us – thanks to the Lord – is one of the best feelings I have ever had in my life.

I want to bring as many people as possible along for the ride! And I’m glad you and I are on the same team.

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