a point to talk to the teacher—more likely than not, he or she lives off the grid and can give you some firsthand advice. Nothing beats the wisdom of experience!
CHAPTER 2
Getting Out of Debt
You might wonder why getting out of debt is one of the first chapters in the book. In order to truly have a self-sufficient lifestyle, you need to be debt-free or nearly debt-free. When you owe someone else, your choices are limited; you have to earn a certain amount of income to meet your obligations. Spending less than you make is vital to financial security.
What Is Debt?
When you are in debt, you have borrowed money from an outside source (for example, a credit card company, an automobile dealership, or a bank) with the promise to not only pay back the original borrowed amount (the principal) but also pay to the lender a charge for borrowing the money at a certain percentage rate (interest).
Three out of five U.S. households have an average credit card balance of more than $11,000. Paying only minimum payments at 24 percent interest, it would take twenty-two years to pay it off—and you would pay more than $47,000 in interest.
To help you understand more about money and how to get out of debt, you need to consider these areas:
How interest works against you or for you
Good debt and bad debt
Creating a budget
Sticking to a budget
Refocusing your priorities
Famous American essayist Ralph Waldo Emerson said, “A man in debt is so far a slave.” Getting into debt or living beyond your means does more than affect your credit rating, it affects your life. Statistics show one of the primary causes of divorce is financial problems. Choosing to spend today and pay tomorrow will indenture your future. As you gain control of your money, you will be free to move forward with the changes you want to make in your life.
The average college graduate has nearly $20,000 in debt; average credit card debt has increased 47 percent between 1989 and 2004 for twenty-five- to thirty-four-year-olds, and 11 percent for eighteen- to twenty-four-year-olds. Nearly one in five eighteen- to twenty-four-year-olds is in “debt hardship,” up from 12 percent in 1989.
How Interest Works Against You or for You
Simple interest is the type of interest used for most consumer loans. The original amount of the loan is your principal. For example, if you bought a washing machine for $1,000 and put no money down, your principal would be $1,000. The interest accrued or accumulated is calculated by counting the number of days since your last principal payment multiplied by your daily interest factor on the outstanding balance. Here’s an example:
Loan balance or principal = $1,000
Interest charge = 13%
Your first payment = $50
Number of days since last principal balance payment = 30
Daily interest factor ($1,000 x 13% /365) = $0.36 (So, you pay 36 cents a day interest.)
Amount of interest owed (30 days x $0.36) = $10.80
Amount of your payment that goes toward the principal ($50–$10.80) = $39.20
New loan balance after payment ($1,000–$39.20) = $960.80
If you continue making payments of about $50 every month, it will take you approximately two years to pay off your loan and during that time you will have spent an additional $141 on interest payments. If, however, you make payments of $90 every month, it will take you half the time to pay off your loan and you will have only spent approximately $72 on interest payments.
The average American with a credit file is responsible for $15,788 in debt, excluding mortgages, according to Experian, a credit reporting bureau.
The longer you take to pay off your loans and the smaller the amounts you pay toward the principal, the more money you pay in interest. Anamortization table can show you how long it will take you to pay off your loan and how much interest you will pay during that period. You can find amortization calculators online, and many banking websites also offer them. You can use these not only to
CHAPTER 2
Getting Out of Debt
You might wonder why getting out of debt is one of the first chapters in the book. In order to truly have a self-sufficient lifestyle, you need to be debt-free or nearly debt-free. When you owe someone else, your choices are limited; you have to earn a certain amount of income to meet your obligations. Spending less than you make is vital to financial security.
What Is Debt?
When you are in debt, you have borrowed money from an outside source (for example, a credit card company, an automobile dealership, or a bank) with the promise to not only pay back the original borrowed amount (the principal) but also pay to the lender a charge for borrowing the money at a certain percentage rate (interest).
Three out of five U.S. households have an average credit card balance of more than $11,000. Paying only minimum payments at 24 percent interest, it would take twenty-two years to pay it off—and you would pay more than $47,000 in interest.
To help you understand more about money and how to get out of debt, you need to consider these areas:
How interest works against you or for you
Good debt and bad debt
Creating a budget
Sticking to a budget
Refocusing your priorities
Famous American essayist Ralph Waldo Emerson said, “A man in debt is so far a slave.” Getting into debt or living beyond your means does more than affect your credit rating, it affects your life. Statistics show one of the primary causes of divorce is financial problems. Choosing to spend today and pay tomorrow will indenture your future. As you gain control of your money, you will be free to move forward with the changes you want to make in your life.
The average college graduate has nearly $20,000 in debt; average credit card debt has increased 47 percent between 1989 and 2004 for twenty-five- to thirty-four-year-olds, and 11 percent for eighteen- to twenty-four-year-olds. Nearly one in five eighteen- to twenty-four-year-olds is in “debt hardship,” up from 12 percent in 1989.
How Interest Works Against You or for You
Simple interest is the type of interest used for most consumer loans. The original amount of the loan is your principal. For example, if you bought a washing machine for $1,000 and put no money down, your principal would be $1,000. The interest accrued or accumulated is calculated by counting the number of days since your last principal payment multiplied by your daily interest factor on the outstanding balance. Here’s an example:
Loan balance or principal = $1,000
Interest charge = 13%
Your first payment = $50
Number of days since last principal balance payment = 30
Daily interest factor ($1,000 x 13% /365) = $0.36 (So, you pay 36 cents a day interest.)
Amount of interest owed (30 days x $0.36) = $10.80
Amount of your payment that goes toward the principal ($50–$10.80) = $39.20
New loan balance after payment ($1,000–$39.20) = $960.80
If you continue making payments of about $50 every month, it will take you approximately two years to pay off your loan and during that time you will have spent an additional $141 on interest payments. If, however, you make payments of $90 every month, it will take you half the time to pay off your loan and you will have only spent approximately $72 on interest payments.
The average American with a credit file is responsible for $15,788 in debt, excluding mortgages, according to Experian, a credit reporting bureau.
The longer you take to pay off your loans and the smaller the amounts you pay toward the principal, the more money you pay in interest. Anamortization table can show you how long it will take you to pay off your loan and how much interest you will pay during that period. You can find amortization calculators online, and many banking websites also offer them. You can use these not only to
Similar Books
Kaldean Chronicles: Kaldean Sunset (Book I)
Maxwell Bond
The Firefighter and the Virgin Princess
Jemma Harte
Heretic
Bernard Cornwell
When Madeline Was Young
Jane Hamilton
Murder in the Smithsonian
Margaret Truman
Dark Inside
Jeyn Roberts
Men in Green Faces
Gene Wentz, B. Abell Jurus
Cops 02 - Love on the Run
Kori Roberts
