This post was inspired by a post written by Patrick at Cash Money Life titled, “Do you Know How Much Interest You are Paying Each Month” and Matt Jabs at Debt Free Adventure titled, “How Much Interest am I Paying? Hint, its Less.” Interestingly Patrick uses just examples, and Matt uses his real numbers.
When I read both these posts I literally got sick to my stomach, and since they egged me on a bit, I decided to calculate it up! Since, I have no credit card debt figuring out the numbers was more difficult as compared to Matt. This is because that neither my Student Loan #1, nor my Auto Loan break down the payments for me.
So, to figure out approximately what I was paying, I headed over to one of my favorite sites, Dinky Town, and checked out their Amortizing Loan Calculator.
|Debt||Monthly Payment||Principal Portion||Interest Portion||Percentage going to Interest|
|Mortgage Payment||$1,259 (without Taxes)||$139||$1120||~82%|
|Student Loan #1 (10 Year Law School Loan 5%)||$106||$73||$32||~31%|
|Student Loan #2 (30 Year Law School Loan 4%)||$252||$0||$252||100%|
|Auto Loan (72 Month 8.9%)||$291||$198||$92||~32%|
Can you say what the hell? Each month an average of 76% of my payments to structured debt goes to interest! I knew when I first saw the inspirations for this post I’d be mad…and boy was I right.
Also, check out Student Loan #2! I remember when that number jumped from $180ish to $252 they told me I had signed up for a graduated increase when I was in school, but I didn’t know I wasn’t touching principal yet. You bet they will get a phone call later to figure out what is going on.
Lesson Learned from Calculating Interest Payments
I learned a very valuable lesson from this:
Regardless of whether I paid off my credit card debt, I have a long way to go until I am done being owned by a bank or finance company
I am going to have to get back on the wagon in terms of getting rid of debt! That being said I will have to recalculate which debt to start to attack first.
- The Auto Loan has the highest interest rate at 8.9% but I am not sure how long I will have this loan for (i.e. sell the car)
- Nothing is going to Principal on Student Loan #2 – even $20 bucks extra a month may save me hundreds over the course of this 30 year loan
DO THIS EXERCISE! If you need help I’d be happy to help