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% |
| Total | $1,908 | $410 | $1,498 | ~76% |
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
Way to go man… I’m so surprised I haven’t heard much more of this idea catching on, glad you found it and used it – soooo eye opening.
If people want to get really mad at their debt, this is one calculation they need to make ASAP!
The good news is… the turtle wins the race every time!
Cheers man.
We should start a Movement! This literally angered me lol
Wow, eye-opening indeed! I would definitely contact your student loan company to determine what is going on with loan number 2. The good news is that the more you pay down your debt, the lower your principal, and the less interest you pay. So as long as you make continuous payments and don’t add debt, your ratio will improve. 🙂
Exactly. For example, the post I wrote that you mentioned is actually an update to my first post back in April. 6 months later I am paying $58 less every month! That progress is very encouraging and is a steady motivator for me to keep POUNDING debt so I can watch the numbers dwindle and keep putting more & more money back in my pocket.
It’s basically reverse compound interest! 🙂
100% correct, but I still need to determine which debt I am going to Attack