Hello friends I want to ask you an important question today, what is the daily interest you pay on any loans you’re currently holding? If you do this research it will take you no more than 15 minutes to complete, and did you know it can help you be debt free sooner. Most lenders charge a daily interest amount, and you can find it by multiplying the full balance owed, by the (APR) Rate, then divide that by 12 to get the monthly amount you are being charged.
To take this calculation a bit further divide that amount by 30 to give you the daily amount you pay in interest. Doing this financial exercise can make you aware of what’s beilng robbed from you every day by holding that horrible debt.
The Average Person will Pay 279,000 in interest payments. (See Below for the article)
What is the Daily interest you pay?
I know you would rather be playing PS4 or maybe watching endless re-runs of the Big Bang Theory, but I will tell you this is a great eye opening task to get you ahead of your debt. Imagine a scenario where you are paying all your lenders, about $30 dollars a day in interest and not including any principal repayments. Now subtract your income per day minus the daily debt interest per day.
If you are making $300 per day then you should be ok, as you can probably afford the interest per day amount. But if you are making $75 dollars per day as income, it is not possible to live off the difference, you need to find a way to find dollars from your budget or increase income.
It makes life more difficult to pay for current necessities when almost half of your daily income amount is going to interest debt re-payments. See below for a few examples of what someone pays in interest for holding loans.
The Credit Card Loan: 5,000 owed @ 9.99% = 41.62 mnthly int / 1.38 daily Int.
The Car Loan: 15,000 borrowed @ 5% = 62.50 mnthly int / 2.08 daily Int.
The Student loan: 25,000 owed @ 3.5% = 72.91 mnthly int / 2.43 daily Int.
The 2nd Credit Card Loan: 5,000 owed @ 12.99% = 54.12 Mnthly / 1.80 Daily Int.
Total for this person is = 50K indebted at an average rate of 7.87% = 231.15 mnthly / 7.70 Daily
If you’re making a $75 per day income and have to shell out around $7 dollars per day in interest, which is a good sized chunk to pay others, because remember you have taxes and housing expenses as well. The costs can easily add up and the daily interest amount is about 10% based off the gross income for someone making 75 dollars a day.
On top of this the income is only good for 5 days a week, while the debt interest accumulates every day including weekends. Debt does not take a break and neither should you in order to eliminate it!
These calculations do not even include the principle payments you are shelling out to the lenders and how much of that amount is broken down by day. Lets assume all monthly payments total $700 dollars per month, next you need to take this amount and divide it by 30 days. The daily amount you are now paying for a 700 dollar monthly payment is 23 dollars.
In total you are shelling out 30 dollars everyday to maintain this debt load, which equates to more than 1/3 of income. The $75 dollar daily income minus around 25 for housing, 10 for food, and 30 for debt payments leaves you with nothing to save for the future.
When you analyze things, the interest can be your enemy or it can be your alley. In this case it is a very evil enemy, because you are paying someone a part of your hard earned income. In the case of investors, mutual funds pay interest dividends to people who are smart with investing. This is when interest is your alley aka your BFF. How can you begin to use interest for your benefit? By not borrowing any new money, paying off all the old debt, and then investing what you used to pay to those debt creditors. Occasionally, it is possible to consolidate your debts under a single loan with an interest rate that is lower than all of your other loans. However, if it isn’t financially advantageous to consolidate, then I without a doubt recommend that if you are saddled with debt, to use the Pay Debt Now method as it works best, and gives you momentum to get rid of the debt.
In the scenario above you should first tackle the 2nd credit card loan with all the available funds you have after paying the minimum on all the other debts. Once that debt is paid off you will move all available funds to the first credit card loan. Once that debt is paid off then you will move to the car loan, and then lastly is the student loan.
This plan gives you momentum because you are taking the payments of all the smaller paid off debts to help you tackle the bigger debts. By the time you reach the car loan you will have a big cash flow amount knocking it off month after month. After the car is paid off you can now afford to send around 700 dollars total to the student loans, and that’s when you can see the balances shrink really fast.
In the end you want to do your best to reduce the daily interest you pay and to begin to increase the daily interest you earn from investments.
The examples are above are just that examples. Please do exact calculations for your situation to be able to make smart financial decisions that will only benefit you in the end and no one else.
What is the daily interest you pay – hopefully it is a big fat 0?
UPDATE: I found an article that states the average person will pay over $200 thousand dollars in interest fees for all loans in their lifetime. It consists of credit cards, car loans, and mortgage loans. Here’s the scary part the study did not take into account student loans. I hope you now understand that is a heck of a lot of dough to send out to banks.
Rich Uncle EL