Avoid Debt

In today's society, it is so easy to obtain credit and thus making it so easy to abuse it and get yourself into debt. Debt isn't necessarily a bad thing but getting yourself in over your head is. And in my case, if I were to carry any debt, other than my home loan and my car, we would not be able to raise our family on our modest incomes.

We learned a hard lesson many years back, that the interest you pay to carry credit is not worth it. Some companies can charge you upwards of 25% interest which over time will pay for the item you bought nearly 3 times over!

Take this for example: If you were to purchase $2000 worth of furniture to furnish your living room, at a 21% interest rate and made the minimum payment of $40 here is how it would look

Principal borrowed: $2000.00
Annual Payments: 12 Total Payments: 120
Annual interest rate: 21.00% Periodic interest rate: 1.7500%
Regular Payment amount: $39.99 Final Balloon Payment: $0.00

The following results are estimates which do not account for values being rounded to the nearest cent.
Total Repaid: $4798.80
Total Interest Paid: $2798.80
Interest as percentage of Principal: 139.940%

Now, you have paid it off in just 120 months, or 10 years and you have paid for it just 2 and 3/4 times. You have now paid $4798.80 for $2000 worth of furniture.

Now, bump that payment up by just $10 per month and it looks something like this:

Principal borrowed: $2000.00
Annual Payments: 12 Total Payments: 69
Annual interest rate: 21.00% Periodic interest rate: 1.7500%
Regular Payment amount: $50.15 Final Balloon Payment: $0.00

The following results are estimates which do not account for values being rounded to the nearest cent.
Total Repaid: $3460.35
Total Interest Paid: $1460.35
Interest as percentage of Principal: 73.017%

Instead of paying $4798.80 for the $2000 furniture, you have only paid $3460.35 and paid it off in nearly half the time, just 69 months.

However, that is still a huge amount to pay, just to get it now! But Hopefully I have made a point. Making just slightly higher payments will save you money and get you out of debt a lot faster. Then, once you are free from debt, save your money and buy it outright. Cut up your credit cards and be patient. Imagine having an extra $150 or even $300 per month in your pocket each month. I know quite a few people that could have that much extra money, if they were not paying interest on credit cards each and every month.

There are lots of sources for debt help, find what you can and do what you can to get out of debt and stay out. It will make a huge difference in your financial portfolio. I promise!