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01-27-2011, 11:27 AM #1
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- Jan 1995
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Article: How much is your Debt really costing you?
How much is your debt costing you? Often times, it's easy to get overwhelmed by making monthly payments on credit cards, but do you know how much your debt is actually costing you each year? Here is a simple calculation you can do in to show you exactly how costly your debts truly are.
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01-27-2011, 12:17 PM #2
This is really basic concept, I don't know why I never thought of doing it before. I added up our debts and we are paying more than 50% of our income in just INTEREST every Year.
No wonder we can never get ahead.
05-17-2011, 02:06 AM #3
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- May 2011
Re: How much is your Debt really costing you?
I hear you!! So now that we can calculate and see that we really wont be getting anywhere for a while with some of our debts....what now? Any advise? Is doing a debt consolidation loan a good idea?
01-26-2015, 02:32 AM #4
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- Jun 2014
Re: How much is your Debt really costing you?
There are sooo many philosophies, and programs, and I'm a huge fan of Dave Ramsey and his advice (I only use the stuff he has on his site for free, I didn't pay for his program but heard a lot of success with it) as well as this digital-style-envelope-system ( http://1beautifulmess.wordpress.com/...t-system-ever/ ) But the most important things are: everyone in the family must be on board with whatever program you decide on, and you must find something that works for you truly, and you have to START SLOW and stick to it no matter what. You have to 'toilet train' yourself... As in, something like this has to become as important to you as using a toilet to go to the bathroom. You absolutely cannot have an accident. It's all good and noble to say, "I'm never going to go out to eat again!" but if you go out to eat and enjoy it, a program like that won't work for you.
The first step for me was to make a list of everything I DID buy/spend money on. Everything. From that $2 candy bar I got for my nephew in cash, to the groceries and car payments. I just took a picture on my phone of the item + the amount on the screen at the store, or of the receipt, because it was more convenient than writing everything by hand. Then after about 2 weeks (the two weeks all of the bills are due for me, may want it to be a month depending on how you do things) I wrote everything down and saw where my money was draining away. Mostly in food, bills, and school/debts for me. Whatever it is you spend money on, add up what you truly buy all month, realize that this month isn't even the busiest one (christmas tends to be for most people) money-wise, and see that you're giving out more money than you're taking in. That balance has to shift to neutrality.
I'm already pretty frugal, but I wasn't always that way. I started out on a frugal 'diet', looking at small things I could change that didn't really make me feel bad at all about being frugal and wasn't intrusive in my life. Some things worked, some didn't. I experimented a lot. Making my own laundry detergent/laundry products worked great... but making my own dish soap sucked and didn't work but using a reusable foaming dispenser saved me a lot of money on dish soap. I used this site and many others and I'll compile a list at the bottom of this section of the stuff I changed first. So the first thing I suggest is just get in the swing of frugality. Start slow, and pick something on that list that costs you money, like laundry detergent, or starbucks, or something like that. And find a way to make that thing save money and work for you. I picked one major bill/item a month to change, and a small item a week to change. I'll start with the big ones.
The big guys eat your money and can be changed. Cell phone bills can be cut in half with different services and plans even if you want to keep the same provider. Do NOT buy a brand new cell phone, buy it used or second hand from ebay, or craigslist and BUY A CASE TO PROTECT IT. Buy 1 generation below the current to save hundreds. I had AT&T and went to straight talk and went from paying tons of taxes and service fees and around $85 a month for my single phone and a few gigs of data to 3 gigs of data and the same service for $47 a month. I'm about to switch again to Verizon because they have a special where you can trade in your old phone to get $150 in credit and have 4 lines and 10 gigs of data for $160 a month (with taxes and stuff) and I am getting a discount for military service (many companies also offer discounts on your phone bill if you work for hospitals, or banks, corporations, etc.) that is going to turn my phone bill (which I'm going in with my family on) into $37 a month for Verizon services. I'm not using the $150 credit and instead I am using Amazon Trade-in program to trade in the old phone to help pay for the new one which is waaaaay cheaper getting it used from amazon than going through verizon's $20 a month phones.
Phew. That was a long paragraph, huh? That's just ONE aspect of my bills. For some bills, you can call around and get better loan offers from other companies that have smaller interest rates (like your mortgage). For some bills, the only way around it is to pay it off. Every bill can be lower and smaller eventually.
For electricity, I did a few things--I did call and negotiate a lower rate with a new company and switched over... but I did things around the house too. I kept picking up light bulbs that don't take as much wattage to run when they were on clearance at home improvement stores (I never bought any of them new off the shelf), I started turning off lights, and I also bought used (from garage sales mostly) power strips and ANYTHING that had a 'vampire light' on it went on a strip and I turned the on/off clickers allll off at night and put the strips where I can easily reach them. (A vampire light is that little dull red/blue light that glows on a device.. the microwave, computer, printers, the TV, the microwave oven, chargers for phones, etc. etc. They ALL run constantly and suck out electricity for convenience.) In the morning, click them back on, and voila you've saved some electricity without sacrificing your gadgets. I stopped using coffee makers that were on all night though, instead I started cold brewing coffee and heating it in the microwave or on the stove the next morning with a french press I got from a thrift store. Way cheaper. I got a smart thermostat (once the newer generations came out of them, I picked up the older ones) and programmed it to turn off/on with school schedules and work schedules, and I can control it from my phone so that's cool too. I bought re-chargeable batteries on clearance one year and replaced all of my money-sapping batteries for kids toys.
Water, mortgage, all the bills can be lowered somehow and some way. Google each one and see what others have done.
On to credit cards and loans.
You need to check and be sure you don't get punished for paying credit cards/loans off early if you got a shadier loan company--some do that.
If you have a credit card with an annual fee CLOSE THAT THING ASAP. If you don't have money you need to pay on it, the ding in your credit will heal with time--your wallet will NOT heal from that 30-100$ a year forever and ever. There are SO many great credit cards that you can use properly to get rewards, anything with an annual fee is NOT worth it.
I used the Dave Ramsey strategy snowball method as many others have done. You make a list of your credit cards, see the minimum payments, and list them in order from the 'smallest' owed to the 'largest' owed. All of those few extra dollar payments you were using to pay a bit more on a credit card here and there, they all go to the smaller amount. You make it a goal to pay a certain amount on the smallest card that will pay it off soon.. Say I owed $1000, $2400, $4000, and a horrible $6,000 credit card debt. The minimum payment balances are $25 a month for the smallest, $35 on the second, $40, and $110 a month. First, stop using credit cards. Then keep paying those minimum balances necessary to not be delinquent in the accounts, but you need to create an extra source of income. The way I did this was I said, "I spend $30 a month on laundry detergent, softener, and dryer sheets. I'm going to make my own for $3-5 a month, and I'm going to spend the extra $25-27 on my debt." So I take that extra $25 and put it to the SMALLEST credit card. I keep making swaps like that until I've built up something substantial. I'm still "spending" the money, but instead of spending it on convenience items, I'm spending it on debt. I changed about 5 things, and I had an extra $100/month for debt payments. I could have paid off the $1,000 (and stopped dealing with the interest money too) in a year at that rate, but I wanted to speed up the process so I started picking up an extra shift at work and going to non-invasive research studies in my free time to make extra money to throw at the debt. Birthday money I got went to the credit card. Christmas money too. Etc. The idea is, once that small credit card is gone--you take ALL of that money.. the $125 you WERE paying on the small card, and any extra money you were making for it, and you put ALL of it towards the second one. Now you're paying $125+35 on the second card. Doing things that way may take longer, but there is always a way to make more money and speed up the process.
You can use credit karma after you've lowered your debts and start aiming at repairing your credit after that.
Once you're on the way to being more frugal, changing your lifestyle, paying things off.. you might start notice that you've been paying for stuff you really don't need and simply cannot afford. At the end of the day, we looked long and hard, and we couldn't afford our house. Our furniture was on payment plans. We were living in an older home, too big for us, not well designed or built, breaking down all the time, and even though we "owned" it we DIDN'T because we were in debt because of it, and it cost us a fortune to heat/cool even with frugal things we were doing. We ended up renting a place instead and have been for a while now.. We bought a shipping container to put in the back of it instead of dealing with storage unit monthly payments. Now that we're more on track, we can finally start shopping for a plot of land to buy to put a new house on. With our newly found debt freedoms, we can afford to find a perfect plot of land, have a real yard, and a custom built home that won't cost us a fortune. We stopped buying cars brand new and sold them back to the dealerships and used the money to buy used but decent cars off of people and saved a boat load of money on interest and financing. Look at the bigger things in your life, and see if they're worth the money. If they're REALLY worth the money. My car was NOT worth the fact I could never go DO anything at the end of week from being so tired from working and never having money to enjoy vacation time. I'd rather drive a more humble car with some conveniences and enjoy my money my way.
I'm already pretty frugal, but I wasn't always that way. Now I look for things that save me money constantly.
My "I don't anymore" list is as follows, and I add something to it every single week. I don't:
Go spend money on movies+treats at the theaters on a whim -- I go to the dollar cinema in my area, groupon a $5 movie, or go to my local drive-in that's a bit further away from my house and enjoy TWO movies for the price of half of one at the other theater... Plus: I can bring my own snacks to them! I eat before I go to the movies instead of buying snacks, and I just bring water with me to drink at the movies.
Own cable television -- We cancelled it. Now, we use Hulu (not Hulu plus though), netflix, red box, and we already have an amazon prime subscription that I share with a very trusted family member (plus I am a student so we save 50% off the subscription..a YEAR of free music, movie access, and 2-day shipping free for $25? Yes please!) The only thing I cannot watch elsewhere is HBO or Showtime stuff, and Football. Instead, I now go to friends' houses to watch those Game of Thrones episodes, or go to a sports bar to watch football (because a $5 drink at the bar is STILL cheaper than $110 a month for cable.) I cut my bill significantly.
Go out to starbucks -- If I'm REALLY pinched for something to drink I get the $1 special at McDonalds, but mostly since I don't drink coffee daily I make my own.. Cold brew it in the fridge with decent coffee beans ground in my nutribullet overnight, press it out, and heat it up the next morning or drink it cold. I make my own creamer DIY firestarters for almost nothing.
Go to gyms -- Craigslist/scout for free equipment, youtube's befit channel and other channels, and utilizing free services for pools in your neighborhood or running trails in your area are free. I used to ask garage sales 'Hey, if you didn't sell this item at the end of the weekend and just want to get rid of it, I'll haul it away for you.'
Pass by good trash -- If it's metal, it can be taken to the scrap metal yard. I keep a blanket in my car and in my truck, and if I find something metal (or a big-ticket item like a washer or fridge) just laying there, I take it, and when I have a decent pile, I take it to the scrap metal yard and make money off of someone else's trash. I got most of my non-bed furniture from the trash, painted it, and voila, awesome furniture for nothing.
I can go on and on forever about how I save money.. But at the end of the day, whatever works for you works for you. Google it, look at all those websites with tons of advice from real people going through real debt, and find your own road to having a healthy relationship with budgets and your money. Until you can look at a budget as a freeing thing that lets you do what you want with your life instead of a constraining thing that keeps you from being happy you'll never enjoy the fruits of your own labor. Make your money work for you for a change instead of letting it run your life.