In addition to my New Year’s resolution to run a marathon, I made a money resolution for 2016. My money goal is…to pay off $30,000 worth of debt!
Most of you won’t be surprised to hear that this is student loan debt (and not even all of my student loan debt!). Unfortunately, taking out student loans to pay for college is the norm in the US. I didn’t even think twice about the amount of money I would owe upon graduation because everyone has debt coming out of school.
Then I had to start paying. Every month. But the principal balance of my loans didn’t seem to be going down at all! Luckily, I found this free Debt Reduction Calculator. You enter all of your loan info (balances, interest rates, minimum payments, etc.) and it tells you when you’ll pay off your loans and how much you’ll pay in interest. For me, if I only paid the minimum payments on my loans, I wouldn’t pay them all off until 2036 and I would pay over $47,000 in interest! That was a wake up call!
If you have any kind of debt, I highly recommend using the Debt Reduction Calculator to get a clearer picture of your financial situation. Once you get over the shock of how long it will take and how much it will cost to get out of debt, the calculator has a lot of options to help you figure out the best way to reduce the time it takes and the interest you’ll pay.
If you increase your monthly payment at all, you’ll save so much money on interest. For example, if I put an extra $50 a month towards my debt, I will pay it off by 2024 (twelve years earlier!) and only pay approximately $26,000 in interest ($21,000 less!). This is using the Snowball Method.
With this method, you pay the minimum payments on all of your debts except the debt that has the smallest balance. Any extra payment (in my example, the extra $50) goes towards this smallest loan. Once that loan is paid off, you apply the extra payment plus the minimum payment amount from the first loan to the second smallest loan. For example, let’s say the minimum payment on the first loan was $100. Once that loan is paid off, you put the $100 plus the extra $50 towards your second smallest loan.
The Snowball Method is pretty straightforward once you get the hang of it. But if you’re unsure, the second tab on the Debt Reduction Calculator is a payment schedule. It tells you exactly what to pay towards each debt each month.
The Debt Reduction Calculator also has payment strategies other than the Snowball Method. All of the strategies are explained on the “Help” tab.
Try out the Debt Reduction Calculator today and take control of your financial future! Feel free to contact me if you have any questions (or just want to chat)! Comment below to share your tips for getting out of debt – I’d love to hear them!