Groundhog Debt: How to Decrease Your Debt Shadow

GROUNDHOG HOW TO DECREASE DEBI YOUR DEBT SHADOW If you are like most Americans, you hold some amount of debt. When you look at your seemingly insurmountable debt - be it a mortgage, a school loan, credit card, or all of the above - you may see a deep, dark shadow; kind of like everyone's favorite groundhog, Punxsutawney Phil. Each year, on February 2, Phil crawls out of his burrow and forecasts the weather by either seeing his shadow and returning to his burrow - signifying 6 more weeks of winter, or not seeing his shadow - signifying that winter will soon end. And just like Phil, it's your turn to determine the future: are you going to live in the shadows of your debt, or are you going to take control of your finances and finally see spring? THE FASTER YOU PAy Paying just the minimum payment on your loans is dangerous. Not only will you be paying for a longer period of time, but you will also be paying a fortune in interest alone. Following are a few THE MORE YOU SAVE different types of debt, what it looks like if you pay the minimum amount, and what happens when you increase your payments by different increments. SCHOOL LOAN** PRINCIPAL: $24,000 INTEREST RATE: *5% In 2009, the average student debt upon graduation of college was $24,000. At an interest rate of 5%, and a minimum monthly payment of $200 it would take 13 years, 11 months to fully pay $400/mo $300/mo $250/mo $200/mo (min.) 5 years, 10 months 8 years, 2 months 10 years, 3 months 13 years, 11 months Interest paid: $3,675 interest paid: $5,254 Interest paid: $6,713 Interest paid: $9,340 off the loan. But with just a little more tacked on to each payment, the repayment time and total interest paid would $350/mo $275/mo decrease considerably. *Interest rate rounded up from the current federal fixed rate of 4.5% **Stafford Loan Type (Extended/Unsubsidized): based on éven monthly payment óver a 12-30 ar period. 6 years, 9 months Interest paid: $3,675 9 years, 3 months interest paid: $5,893 year 15 year duartion selected for cómparison. CREDIT CARD $300/mo $125/mo $70/mo (min.) PRINCIPAL: $3,465 INTEREST RATE: 15% The average revolving debt held by Americans 18 years 1 year, 1 month 6 years, 6 months Interest paid: $1,969 2 years, 11 months Interest paid: $301 Interest paid: $816 and older clocked in at $3,465 in November, 2010. Revolving debt is mostly comprised of credit card debt, or any debt where the creditor sets each monthly payment based upon the current balance. $200/mo $150/mo $100/mo "Interest rate rounded up from the current average of 14.72% 1 years, 8 months 2 years, 4 months 3 years, 10 months Interest paid: $465 Interest paid: $650 Interest paid: $1,104 MORTGAGE PRINCIPAL: $190,176 INTEREST RATE: *5% $1,750/mo 12 years, 2 months The average mortgage balance in the U.S. was in the third quarter $1,300/mo Interest paid: $63,592 $1,100/mo $190,1 18 years, 11 months of 2010. At 5% for 30 25 years, 7 months Interest paid: $103,862 Interest paid: $146,960 years, and minimum payment of $1,021, the amount of interest paid in the end would equal paying just the $265,312. But increasing the monthly payment by just a little bit significantly reduces the total interest paid. *Interest rate rounde current average of $1,500/mo dup from the 15 years, 1 month $1,200/mo Interest paid: $80,879 21 years, 8 months Interest paid: $121,471 $1,021/mo (min.) 30 years Interest paid: $265,312 credit sesame Sources: dailyfinance.com I federalreserve.gov I projectstudentdebt.org I cgi.money.cnn.com I bankrate.com/calculators