There is a way to be Debt Free Forever without changing your lifestyle and without spending any more money than you spend today. This is not another loan for debt consolidation, and it is not extra payments from your checkbook.
Understanding how to best manage your debts can help you build a more secure financial future. Having knowledge of how amortized loans work is a great first step.
Often misunderstood is how to calculate the amount of interest you are actually paying with an amortized loan. An amortized loan has front loaded interest and the percentage of interest you pay is greater earlier in the loan term and lesser as your debt gets paid down.
Let’s do the math on a $100,000 fixed rate 30 year mortgage at a 3.5% interest rate does not mean you are paying 3.5% interest.
The 3.5% is an annual percentage cost calculated in this manner:
- $100,000 x .035 = $3,500 divided over 12 months = $291.66 Interest due.
- The payment on a $100,000 30 year fixed rate mortgage at a 3.5% interest rate is: $449.04.
- So, the effective interest cost in the first payment of that $100,000 mortgage is $291.66 divided by $449.04 = 64.9% interest (not 3.5%).
Since most people refinance or get a new home and a new loan this sequence starts all over again.
This means we never get to 3.5%. We are continuing to pay much more in interest than we believe.
Contact me if you would like to fix this and be “Debt Free Forever”…We will prepare a complete analysis of your debt situation and we will build a plan for you. There is no fee.
Let’s due the math on a student loan:
- A $30,000 10 year term at 4.79%.
- $30,000 x .0479 = $1,437 of interest divided by 12 months equals $119.75 interest.
- With a monthly payment of $315.13 and $119.75 of that payment in interest; the effective interest cost is 38% not 4.79%.
Contact me to discuss how you might be Debt Free Forever. We will provide you with an analysis of your current debt situation and propose a plan.