Paying off your debt

Posted by PhroBoy - Financial Wonderboy | Site News | Wednesday 10 November 2010 9:01 pm

This post will primarily help those trying to pay off credit card debt.  

Credit cards can be wonderful things – to the right person! Some cards offer points and rewards just for using the card. However, if you do not pay off the entire statement balance before it is due, you will pay interest and give up potentially any benefit you gained. My tip for credit cards is to use it like cash. If you don’t have the cash to pay off your credit card right away, just put your credit card back in your pocket.

If you have credit card debt, the first thing you need to do is to get rid of your credit cards – stop charging! You have to stop in order to get better. Create a budget and set how much money you will set aside each month to pay it off. Be ready to struggle because you have already lived easier than you should have when you got yourself into the credit card debt in the first place. If you only pay the minimum balance, you will never pay the card off and the interest will keep accumulating.  Track every dollar your spend, and you’ll be amazed at where you’ll be able to save.  Here’s the priority list: pay God first (>10% – be charitable!), pay yourself second (20% is preferred – savings and paying off debt money), and the rest can be used for all else.  Follow this order and you’ll be amazed at the freedom you’ll have!

Now that you have stopped charging against your credit and set a budget, you are ready to pay your debt down in the most efficient manner possible. The key is to pay off your highest interest rate first. Look at all (credit card, auto, student loans, etc.) debts and organize them from highest rate to lowest rate. Now that you have all of your debts with the interest rates lined up, put in the minimum payment that is required for each debt. This is now your base so you know how much you have to pay off each month.

You have budgeted how much you are going to sacrifice each month to paying off your debts, so you take the amount left after all the minimum payments and use it to pay off the highest interest rate first. The more you can set aside, the quicker you can pay off your debts. Once you have paid a card, don’t make the mistake of charging more on it. Avoid your highest interest rates like the plague. My friend Patrick likes to say he is like a Gazelle to get out of debt. Be a Gazelle – get out of debt!

If you’re really serious about getting out of debt, here is a site set up by my personal finance professor from college to help people manage their finances. Here is a file to help you set up your budget and line up your debts for you in priority of how you should pay it off. I’ll deal with setting up budgets in another post.

Remember, if you’re in debt, you have to change your behavior. You’re a slave to a creditor. Whether you could avoid it or not, you have to change the way you live to make the situation better. Don’t buy a new car when you can buy a perfectly good used one. Don’t go out for lunch when you can just as easily make yourself a sandwich. Don’t use more of your credit when you’ve already abused what you’ve been given.

My wife and I would like a mini-van or perhaps an SUV because it would be easier to get our kid in and out of the car and to take trips. We have been living off of one car through car-pooling and public transportation since we have been married. We might be getting a new car, but the only car we can afford to pay cash for is one that costs $1,500 and works just fine. Taking a lunch to work everyday gets really old, but we do these things because we know in the future we can start to live without the burden of debts and with the satisfaction of knowing we are living within our means.  It may sound like life sucks, but avoiding debt is freedom and happiness.

Debt – the Basics

Posted by PhroBoy - Financial Wonderboy | Site News | Tuesday 19 October 2010 11:45 am

I believe my last post was a little technical.  However, come tax season, when you actually care about saving money on taxes, I suggest reviewing it in detail.  It could save you a lot of money.

When asking what people wanted to learn more about with regards to finances, a majority of the responses were from people who wanted to know how to avoid or get out of debt.  I thought it might be good then to start with the basics.  Debt – it’s like free money…except that it’s not free and the burden will never go away until you pay it off. This is how most retail financial institutions (e.g., banks) make money. They say “Sure! You can have $10,000 to help with your tuition, and you don’t have to pay me back until 6 months after you graduate.”

Example of $10,000 student loan

Let’s say you’re able to get a great student loan rate of 5% (credit cards can have annual rates over 20%) and your payment plan is over 10 years.  Unless this is a government student loan, you are accruing interest while you still go to school even though you are not paying anything yet.  For ease of my example, let’s assume that at the end of school, when your payments kick in, you have accrued $2,500 in interest (for you finance geeks this is a rough estimate of $10,000 accruing compounding interest over 4 years @ 5%).  That means you end school having to pay off $12,500 even though you only got $10,000 in cash for help with school.

The lending company (i.e., the bank) will set out a payment plan for you to make equal payments over the ten years you have to pay it off.  In our scenario, it roughly calculates to $130 a month.  If you multiply that times the number of payments you will be making (120) you will have paid the bank back $15,600.  Though you only got $10,000 in cash initially, you will have paid the bank over $5,000 in interest plus the original $10,000.  That stinks!  If your payment plan is over 20 or 30 years, you will pay even more in interest.  If your interest rate is higher like in the case of a credit card, you could be paying far more in interest alone than you ever received in cash.


That, my friends, is why the banks make so much money and why you should avoid going into debt! That’s the basics – STAY OUT OF DEBT!!!

If you can’t avoid it —

  1. Get as little of it as possible. Live like it’s not your money and you are dirt poor…because you are dirt poor when you’re in debt!  Don’t buy a new car, don’t go out to eat, don’t lose track of your budget!  If you are in debt, you should live like you are a slave to it so you will have more money to buy back your freedom sooner.
  2. Pay it off as early as you can.  Keep living like you are dirt poor even when you have a salary that indicates otherwise.  Anything you pay above the required monthly payment can pay off the balance of the debt and reduces the total interest you pay. The bank gets far less of your money that way.  (Note – some lenders require you to indicate payments specifically as “principal repayment” otherwise they will consider it as next month’s payment paid early; check your loan agreement)

To quote Dave Ramsey, “If you will live like no one else, later you can live like no one else.”  Great words to live by!
Getting into debt is easy, but getting out will be tough.  Good luck!

The next post will be on a plan to pay off your debts in the most efficient manner possible.


Posted by AfroWhitey | Site News | Monday 18 May 2009 11:12 pm


After spending years and years helping friends and family with their basic technical, home theater and computer questions, I found that a lot of people are having the exact same issues. It occurred to me that a more public forum for these questions may help many more people than I could ever hope to assist with private support sessions. At the very least, it will feed the flames of my delusions of grandeur.

My goal with this site is to keep everything very basic, so that even the most technically challenged users can follow the suggestions and how-tos that will follow. In the future, I also plan on having guest authors covering areas from photography to finance and maybe even a little social media (Facebook, Twitter, Myspace, etc) and more. I encourage anyone to submit their questions and I will do my best to answer them as quickly as possible and expound on those more broadly applicable, consulting my network of experts whenever I need to.

As always, I welcome your feedback. Feel free to comment in any post, email me at Luke (at) afrowhitey (dot) com, send me a tweet (@afrowhitey), friend me on FriendFeed, or become a fan on Facebook.  If you live in the Las Vegas area, I also do house calls (consultation is free). I hope you enjoy the posts to come!