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Interest Amount Paid – Establish a Proper Relationship with Your Debt

04.15.2009 by Matt Jabs //

Your Debt Costs You More Than You Know

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!

This article will address the following:

  1. What is interest & how destructive is it
  2. How much interest I pay out each month
  3. How I calculated that amount
  4. The anger I gained toward my debt after completing this exercise
  5. The incredible motivation this information gives you
  6. Real steps we can take to lower, reduce, & eventually eliminate the interest we pay

What is Interest & How Destructive is it?

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

Please note that I will have to pay these amounts each & every month until I eliminate the associated debts.  However, on the bright side, the amounts will lower each month as I lower the principle debt amounts.

  • Mortgage 1 (80%) – $592
  • Mortgage 2 (20%) – $296
  • Student loan 1 – $165
  • Student loan 2 – $120
  • Auto payment – $52
  • Credit card 1 – $30
  • Credit card 2 – $19
  • Credit card 3 – $11
  • Credit card 4 – $8
    • Total interest amount paid for March 2009 – $1,293

Let it be stated that this is approximately 20% of our gross family income (amount after taxes).  A convincing explanation of how this interest amount paid greatly hinders our ability to save and become financially free is simply not necessary; the numbers speak for themselves.

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.

The Anger I Gained Toward My Debt

Before I completed this exercise I was certainly angry about the amount of debt I had, but now that it has been so plainly laid out in front of me I have entered into an entirely new realm of DEBT HATRED!

Similar to how the bible teaches us to HATE SIN, I am learning more & more to have a righteous hatred toward my debt.  It gives new meaning to Proverbs 22:7, “The rich ruleth over the poor, and the borrower is servant to the lender.”

It is important that we use this information as motivation to push us into a much more passionate, much more driven, much more functional stratum of debt repayment & elimination.

How to Channel Your Anger Into Motivation

This step is simple but crucial.  You must not allow yourself to slip into the trap of becoming overwhelmed.  You must realize that you are the only one who can turn this around.  You must stand up and fight.  You must take control of your own financial destiny and your own financial freedom!

Consider, meditate, and memorize this quote and use it as a daily battle cry against your debt:  “A journey of a thousand miles begins with a single step.” ~ Lao Tzu

Solidify in your mind the realization that you got yourself into this mess & just the same you are the only one who can get yourself out.  Now stand up and take responsibility for your own actions and commit to establish a new financial mission of debt free living.  A mission that will change your existing relationship with your creditors.  A mission that will enable you to take control of your own financial situation.  A mission that will allow you to finally begin building your own wealth with the money you have long been squandering on interest and debt.  A mission strongly fortified with direction and goals.

Real Steps to Reduce, Lower, and Eliminate Interest & Debt

I would like to start this section by happily reporting that Credit Card 4 from above was eliminated with this past months payment!  That means that I will now be paying $8 less interest every month, and when I add in the reduction of principle of the other debts, that number actually grows to $12.

By using a focused, goal oriented approach, in one month I was able to lower my monthly interest amount paid by $12.  I will use this amount as motivation and will keep track of how much I reduce my interest amount paid each month.  You should do the same.

  1. Hold on to the list 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 of the following methods in tandom:
    • The Dave Ramsey snowball method of paying off small debts first to motivate yourself & see entire debts eliminated
    • Focusing on the highest interest debts – doing so will be the fastest way to lower your interest amount paid
  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.  This disciplined approach, if properly employed, enables us to begin building wealth and will help guide us down the road toward our ultimate goal of FINANCIAL FREEDOM.

DFA exists to help you become debt free. If there is something you like or dislike; something you would like to see more of or less of, no matter how trivial it may seem to you, please let us know.  The best way for us to improve for your liking is to hear it straight from the horse’s mouth. If you have been reading but have never commented, I encourage you to do so now.

Categories // Debt Tags // amount, Debt, How Much Interest?, interest, lower, monthly, paid, repayment

5 Minutes to Lower Monthly Bills – DFA Tip of the Week – 3/30/2009

03.30.2009 by Matt Jabs //

There are many ways to reduce costs in our everyday lives, so to help do just that each Monday I will post a money saving “Tip of the Week”.

“And he said unto him, Well, thou good servant: because thou hast been faithful in a very little, have thou authority over ten cities.” Luke 19:17

This week’s tip involves…saving money on monthly bills by simply calling & asking for a price reduction!

How much it saved me…

I started with Comcast and DirecTV whom I have for Internet & television providers respectively.  The reason I use both companies is a little complicated.  Originally I had Comcast for both Internet and television, but was not happy with being changed an arm & a leg for service, so I decided to switch to DirecTV.  Since DTV did not provide Internet service and because DSL is not offered in my new subdivision, I had to keep using Comcast for Internet.  Regarding television, I skeptically entered into a 2 year contract with DirecTV because I didn’t really have a lot of other options.

Now over a year after all my shifting around of services I was paying $63.95/month to Comcast for Internet along with $75/month to DirecTV for television – and so there went my other arm & my other leg.  Being armless & legless was making it quite difficult to get around so I finally decided to get off my lazy butt (pun intended), and make the calls to demand better prices!!  I did just that and ended up getting my Comcast bill reduced to $37.99/month and my DTV bill down to $55 creating an additional $46/month for me to put into my savings!

Now I’m just going to buy an HDTV digital antenna and get TV for free!

Use these tips when calling…

The CSR’s (Customer Service Reps) are trained to try to dissuade you from your dream of reduced expenses so I will now give you a few pointers in dealing with them:

  1. Maintain an excellent spirit when dealing with the CSR – The old adage, “You catch more flies with honey than with vinegar” is quite true.  Just think of how you would like to be addressed then give the CSR the same respect and courtesy.
  2. Maintain separation between the CSR and the company itself – This is quite a successful tactic that I have not ever heard anyone else mention.  Basically you want to create a distinction between the CSR and the company they work for.  This allows you to voice your displeasure with the company, while not attributing any of the displeasure to the person you are dealing with on the phone.  For example instead of saying, “You are charging me too much for Internet“, say something like…”I am just really unhappy with how much Comcast is charging me for service, especially with all the other options out there.“
  3. Get the CSR to empathize with your situation – Now that you have created that separation between the CSR and the company they work for, you are better able to place them in your situation.  Say to them, “What would you do if you were me?” Or simply, “How would you feel if you were in my shoes?“
  4. Use the company’s competitor’s prices and services against them – If you use Comcast for Internet, talk about the low prices AT&T is offering on residential DSL service with similar speeds.  Say to them, “I will stay with Comcast if they can match AT&T’s prices, otherwise I’m going to have cancel and go with AT&T.  I mean, what would you do if you were in my shoes?“
  5. Be willing to discontinue the service – Ultimately if you are not truly willing to leave your current provider, you will be less authoritative and they will be less likely to oblige you.  Make sure before making this decision you discuss it with your wife and/or family.  Be sure to explain the alternatives, and also key on possible benefits of cancelling the service altogether.
  6. Be confident and persistent – Just as you are much more likely to listen to someone who delivers a confident and meaningful argument, so the CSR will be too.  Before you call, make a plan of action.  Write down the reasons why you need the price reduced along with price quotes from several other providers.  If you are prepared and resolved, the CSR will have a hard time denying your request…it worked for me!!

I saved $46/month doing this…how much did you save by employing these tips? Make sure to let us know by leaving a comment below.

Have you already successfully gotten your prices reduced by calling?  Let us know about that too.

Click here to see all our past DFA Tips of the Week.

Categories // Expenses, Spending, Tips Tags // bills, how, internet, lower, monthly, reduce, Reduce Expenses, satellite, television, tips, to, tv

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