You Might Be Wasting Thousands of Dollars on Debt
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You Might Be Wasting Thousands of Dollars on Debt
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Home Page > Finance > Personal Finance > You Might Be Wasting Thousands of Dollars on Debt
You Might Be Wasting Thousands of Dollars on Debt
Posted: Dec 16, 2011 |Comments: 0
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Using a debt calculator like CNN Money’s Debt Reduction Planner will give you the awakening you need to make some critical choices about your debt repayment.
What can an online calculator do for you? Perhaps the most empowering thing about a debt calculator is that you can figure out the true impact, or lack of impact, of your monthly debt payments. CNN Money’s calculator takes minimal amount of information that you can easily find on a copy of your most recent billing statement. Look for your current balance, interest rate, and minimum payment for your debt. These are the details you’ll enter in the first section of the calculator.
If you’re only paying the minimum payment on your debt, select “Minimum payments” in the second section of CNN Money’s calculator and click the Calculate button. The next page is where the enlightenment comes. The result shows you how long it will take you to pay off your debt making minimum only payments and more importantly, how much interest you would end up paying when you’re making just the minimum payment.
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Here’s an example based on numbers from the Federal Reserve’s July 2011 report on consumer credit. Assume $15,799 of credit card debt and a 13.10%, both averages based on the number of households that have credit card debt. A 3% minimum payment on that credit card balance would be slightly less than $475 per month. If you’re just paying the minimum on that account, you would pay a total of $8,410.42 in interest over 16 years and 11 months. That’s a lot of interest to pay and a long time to repay your credit card balance.
You could save thousands of dollars by increasing your monthly payment, even if it’s just a couple hundred extra dollars a month. If you paid $650 toward your debt each month, you would pay off your debt in 2 years and 5 months and you’d pay just $2,427.93 in interest. You’d save close to $6,000 just by making the sacrifice to pay extra every month. Use the “Fixed payment” option in CNN Money’s calculator to see the savings potential of increasing your monthly debt payment.
And, if saving $6,000 isn’t enough to inspire you, you could invest your $650 monthly debt once you finished paying off your debt. Since you’re accustomed to sending the payment anyway diverting it directly to an investment won’t hurt as much as if you were starting from scratch. If you put $650 in an account with a 5% yield each month for a year and leave it there for 10 years, you would earn $4,757.58 and save a total balance of $12,557.58.
No matter where you think you are in your debt progress, paying a visit to CNN Money’s calculator is a much-needed checkup. You’ll either confirm that you’re doing things right or come to the realization that some changes to your payment are long overdue.
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About the Author:
Steve Dowell is an expert writer on subjects related to debt settlement, debt help, and much more. Read more of his work on his blog Debt Settlement!
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