Understanding Your Current Debt Position
 

Do you realize that if you owe $5,600 on a credit card with an 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 a 14% interest rate, $3500 for the credit card with 18% interest and $21,000 for the car loan with 10% interest.

 Most people unfortunately, do not summarize their debts correctly. They simply follow the debt period/time and payoff their debts without having a clear status of what is really happening behind the scene.

This resource is not written to simply explain theories; you will learn how to calculate your debts and how to recreate a payment plan to avoid huge interest rates and hence cutting down your debts and/or becoming debt free.

NOTE: take your calculator, grab a piece of paper and do these same 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 + $3500 + $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% 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 in interest approximately the same amount of owe? Unbelievable!

You will be paying $120,266. By simply creating a repayment plan (following steps of the next article), you will save a TON of money! And save time too! And make life easier and let the dream come true!

If you were to pay off your debts by paying either the minimum amount or the payment amount of a 15 year amortization, you would have to pay a total of $59,766.10 in interest and would not pay off your debts for 13 years and 2 months.