By: Chris Tinsley

Disclosure: Some of the links in this post are affiliate links and if you go through them to make a purchase, I will earn a commission.

Most paying off debt articles are a waste of time, all motivation and no help dealing with a large amount of complicated debt. Obviously, spend less then you earn to pay off debt, got it. No one is showing you how much your debt is costing you in interest and most people don’t want to know. Today is the day to figure out how much interest you are paying to the bank.

If you take nothing away here is the bottom line:

1. Make at least 2 payments each month, for example, on the 1st and 15^th. This will allow you to pay down some more principal in the middle of the month. Otherwise interest will build for the whole month, costing you more over time. (Trust me it works)
2. Use the below Amortization Schedule (Interest calculator) to show you the true cost of all of your debts, by putting the interest right in your face. 

Let’s come back to showing you number one a bit later. First, we need to define some terms.

1. Amortization: This SAT word means: the action or process of reducing or paying off a debt with regular payments. Great, nothing fancy it just means paying off your debt each month.
2. Amortization Schedule: this is a spreadsheet (see below) that will tell you how much interest you will pay overtime. Think of it as an interest calculator.

The interest calculator I am using is from: http://www.loanlab.co/excel-based-calculator-and-amortization-tables-for-multiple-student-loans/

If this link doesn’t work google “amortization schedule” and pick one that you like from the list. I love this interest calculator because it shows multiple loans at one time which should help lay all your debt out at once.

Here is the example I will be using:

The three things needed to figure out your debt is the amount you owe, interest (in percentage), and the term aka time you have to pay your loan back in years. As soon as you enter those numbers into your excel calculator this is what it looks like:

Entering your numbers in the orange gives you the solution on the loan summary. This is where your planning comes into play. You can change the number of years that you want to keep your loan which will in some cases drastically change the amount you pay on your loan. If you are more visual it also gives you a chart:

Bottom line, in total you will have paid: $18,845.45 in 10 years of having paid off your debt. This is a ton of money! Think how much you would have if you had invested that money or how many memories you would have if you used that for vacations!

If we cut all of the loan time in half for every loan, we are only paying $8,960.18 with-out having even fully double our payments. Take a minute to compare the top and bottom charts. It translates to a ton of money!

Now if this doesn’t get you excited then just quit this article because keeping more money in my pocket gets me pumped! Believe it or not it gets even better! Now that we are sick to our stomach from all of the interest we are paying let’s see what making 2 payments a month will do to make our interest rate go down.  

Here is a link to that tool: https://www.bankrate.com/calculators/mortgages/bi-weekly-mortgage-calculator.aspx

If this link doesn’t work google: “Bi-weekly loan calculator”. First let’s do loan 1. Enter the amount, $40,000, interest rate, 4% and the term aka length in years, 10 years. On the right-hand side you see the comparison between making 1 payment a month and making 2 payments a month.

You are paying the same amount each month and you are paying $912.56 less by only changing how you make your payments! If you don’t think this is huge then you must like the bank taking your money.

Let’s look at the same loan being payed off in 5 years:

Not only are you paying the loan off sooner in five years but you pay $413.10 less by doing two payments a month. You can do this for every loan above and see what kind of difference this can make for you in paying less interest. Now this paragraph is the only motivation I will add to the blog post. Now that you know how much less interest you could be paying, go out and do it! Get an extra job, get a side hustle, start doing Air-BnB from your current house, and/or cut your expenses. Conquer that debt and get out from under it.

Here is a list of resources (finance books and a planner) we recommend to help with managing finances/budgeting:

1. The Richest Man in Babylon by George Clason
2. Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! By Robert Kiyosaki
3. Budget/Financial Planner (Great tool for managing finances)
4. Dave Ramsey’s Complete Guide To Money. By David Ramsey

If you liked this article, check out our other posts and strategies for living debt free at: http://www.househackingwithchrisandrachel.com