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Strategies For Getting Out Of Debt
The secret to repaying debts quickly and saving on interest charges
is to continue to pay the same amount each month until all debts are
repaid. As one debt is paid off, apply that payment amount to
another debt.
To move forward with the same example, the current monthly payment
is $850. If you pay an additional $180 each month thats mean $1030
of total monthly payment, your debts will be repaid in 7 years and
10 months and you will avoid $23.617 in interest charges.
As you noticed, by simply allocating $180 you save $23.617 meaning
if you allocate more monthly payment you will save more and more!
If you follow your Debt Free/Reduction Plan, you will save
$23,617.86 in interest which is equivalent to 39.5% and have your
debts paid off in 7 years and 10 months and not 13 years and 2
months.
There is a very important note to take in consideration. If for
example you have a debt of $5600 with 3% of interest, you will not
pay 3% each month, this amount decrease accordantly. The following
table will explain step by step how to calculate the monthly
interest rate.
Debts
to pay:
Amount: $5600
Monthly Payment: $680
Interest rate: 3%
|
Month |
Balance |
Monthly Payment |
Interest* |
How to calculate new balance |
|
January |
$5600 |
$680 |
$14 |
($5600-$680) + $14= $4934 |
|
The new balance for the next month is $4934 |
|
February |
$4934 |
$680 |
$12.34 |
($4934-$680) + $12.34 = $4266.34 |
|
The new balance for the next month is $4266.34 |
|
March |
$4266.34 |
$680 |
$10.67 |
($4266.34-$680) + $10.67= $3597.01 |
|
The new balance for the next month is $3597.01 |
|
April |
$3597.01
|
$680 |
$8.99 |
($3597.01 $680) + $8.99= $2926 |
|
The new balance for the next month is $2926 |
|
May |
$2926 |
$680 |
$7.32 |
($2926 $680) + $7.32 = $2253.32 |
|
The new balance for the next month is $2253.32 |
|
June |
$2253.32 |
$680 |
$5.63 |
($2253.32 $680) + $5.63 = $1578.95 |
|
The new balance for the next month is $1578.95 |
|
July |
$1578.95 |
$680 |
$3.95 |
($1578.95 $680) +$3.95 = $902.90 |
|
The new balance for the next month is $902.90 |
|
August |
$902.90 |
$680 |
$2.26 |
($902.90 $680) + $2.26 = $225.16 |
|
The new balance for the next month is $225.16 |
|
September |
$225.16 |
$680 |
$0.56 |
|
*
Interest calculation
$5600 x 3% = $168/12 months = $14 as interest for the 1st month
$4934 (new balance) x 3% = $148.08/12 months = $12.34 as interest
for the 2nd month
$4266.34 x 3% = $127.99/12 months = $10.67 as interest for the 3rd
month
$3597.01 x 3% = $107.91/12 months = $8.99 as interest for the 4th
month
$2926 x 3% = $87.78/12 months = $7.32 as interest for the 5th month
$2253.32 x 3% = $67.60/12 months = $5.63 as interest for the 6th
month
$1578.95 x 3% = $47.37/12 months = $3.95 as interest for the 7th
month
$902.90 x 3% = $27.09/12 months = $2.26 as interest for the 8th
month
$225.16 x 3% = $6.76/12 months = $0.56 as interest for the last
month
So each month the interest decreases depending on the new balance.
Now that you have completed these examples, you will be able to
easily calculate and manage your debts and know exactly how much you
will pay and the time to payoff all your debts and the most
important how to re-create a debt reduction plan and save money and
time!
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