Today’s challenge is to put in a plan of action to start paying off your debts. Now that you have seen how much a debt costs you and how much extra you are paying in interest in yesterday’s challenge, this is probably the best moment to kick those wretched loans to the curb as soon as possible.
Once you start paying of your debts you are beginning to regain control over your financial life, little by little lifting the strain of monthly payments and the psychological burden of being indebted to somebody else.
Even if you only make small extra monthly payments, they can make a huge difference on the amount of money the loan costs you and how long you are tied to this loan. Below is a chart where you can see how big a difference even small extra contributions can make. Based on a debt of $1,000, at a 1.5% monthly interest rate, it compares three situations:
- a minimum monthly payback rate of 3% of the outstanding loan with a minimum of $10.
- the minimum monthly payback rate of 3% of the outstanding loan with a minimum of $10 but with an additional $25 per month added to the payment.
- Sticking to the first monthly payment of 3% + $25 without ever decreasing the amount ($55 in this case).
|Minimum monthly payments||Minimum payment + $25 extra||Keeping 1st monthly payment|
|total in interest||$763||$223||$175|
As you can see, there is a huge difference in the results, even with just an extra $25 paid off per month!
Let this motivate you to take action today, find where you can free up some money and start paying off your debts faster. Start with just 1 debt – ideally the one with the highest monthly interest rate – and leave everything else for what it is (but make sure to keep making the minimum monthly payments!).
Paying back your debts will take time and effort, so once you have made your commitment, please be brave enough to share it with the rest of us in the 31 Day Challenge Facebook group to inspire others or find motivation, or let us know on Twitter with the 31DayChallengeToFE hashtag. For more information make sure to check out Step 23: Start paying off 1 debt, of the 100 Steps to Financial Independence.