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Reducing Your Debt (Instructions and examples to complete your analysis)

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Reducing Your Debt Example

Let's use the following numbers to illustrate this example:

$1200.00 = All debts Owed
8% = Interest I am paying (average interest rate for all debts)
$15.00 = Amount I am paying per month

NOTE: When you are analyzing your debt don’t forget to total all your debts, interest and payments.

Example: The $8.00 here is the amount of interest being paid out of the $15.00 per month currently, with only $7.00 being applied to the debt.

$8.00 is what % of $15.00
8 divided by 15 = 53 .3%

53.3% is the percent of your monthly payment that is paid as interest.

If you continue to make the current monthly payment of $15.00 you will be in debt with this bill for 9 years and 7 months!

WHY?

$8.00 interest per month for 12 months = $96.00 + $1200.00 = $1296.00 divided by 12 months = 108 months + 7 more months (115 months accrued in interest payments that lengthens the debt)

AGAIN, ONLY $7.00 OF THE $15.00 PAYMENT IS APPLIED TO THE DEBT.

That is the $15.00 per month minus the $8.00 interest =7 months accrued over the length of the debt.

YOU WILL NEED A MORTGAGE CALCULATOR TO COMPLETE THIS TASK

During this 115 month period you will pay $520.58 interest which is 43.3% of the current debt .

Calculate:

Be sure to calculate the rate of interest on the unpaid balance each month or use the online calculator.

8% of the unpaid balance per month for 115 months = $4.5268

115 months (9 yrs. & 7 mos.) x $4.5268 = $520.58 interest you will pay over the period of this debt.

What % is $520.58 of $1200.00 = 43.3%

>> $520.58 divided by $1200.00 = 43.3%

Formula for reducing your debt.

The secret to repaying debts quickly and saving on interest charges is to first decide how much you can pay additionally to your current monthly payment and continue to pay that amount each month for each statement until the debt is repaid.

As you payoff one debt, add that amount to another debt as a payment until that debt is paid. DON’T USE THAT MONEY TO MAKE MORE DEBT!

Example continued on the $15.00 payment:

If you pay an additional $5.00 each month totaling $20.00, calculating the rate of interest on the unpaid balance per month, your plan would look like this:

New Repayment Schedule @ $20.00 per month:

Total Payment $1,537.60

Total Interest $337.60

Interest % of Payment 21.9%

$337.60 divided by $$1,537.60 = 21.9%

6 yrs. 5 mos. To repay debt

Saved $182.98 in interest (or 35.1%)

Old Payment Schedule @ $15.00 per month

Total Payment $1,720.58

Total Interest $520.58

Interest % of Payment 30.2%

9 yrs. 11 mos. To repay debt

Wouldn't you say you've cut interest rates to the bone?

Continue to download the "Reducing Your Debt Analysis Form" and first decide the additional payment amount that you can afford to pay off your debt.