A Quick Experiment to Try On Your Own

Sitting here and thinking about our debt (as I often do), I got to wondering about a very basic question -- how much in interest do we pay every month? 

Now, we all know about interest -- it's what gets paid for someone using someone else's money.  The bank pays you interest (though not very much) for you leaving your money with them.  But flip the interest coin over, and there's you, paying someone else (the mortgage company, the government, the credit card company) to use their money.  Odds are you're paying much more out in interest than you're ever receiving.

But how much in interest, exactly, are you paying out every month?  We all look at our "minimum monthly payment" or the total amount we pay, but rarely do we take the time to compute how much of that total amount is being paid just for the privilege of having borrowed someone else's money.

So, I decided to figure it out for us, looking at how much we've paid here in January 2010 because we were too impatient to save for some large expenses (because, let's face it, if we have the ability to pay off these debts, then instead, we could have waited and saved the money to pay cash in the first place -- we just didn't want to take the time to do so).

First is the mortgage.  Going to the website (a great thing to do on a regular basis, just to keep tabs on things), I see that for our last regular mortgage payment on January 1, we paid $487.65 in interest.  Now, if you consider that, as I write this, the balance is still somewhere north of $98,000, that's not a great amount, but if you look at that in every-day run-of-the-mill numbers, that's kind of scary.  (What would your significant other/parent/sibling/friend say if they knew you went out and dropped almost $500 on something which vanished as soon as you paid for it?)

Now, the student loan.  Thankfully, since the balance is lower (just a hair over $22,000), and the rate is lower, the interest paid is much less -- only $66.55.  Still not great, but the amount of a really nice (at least for us) restaurant meal and movie ... but without the full stomach and feeling of satisfaction.

So, grand total we're paying in interest every month?  $554.20. 

Your turn.  Go on and figure this out, exactly -- no guessing or assuming.  Be honest with yourself -- you deserve that much.  Go on, do your calculations.  I'll wait ...

Good.  Now that you've done that, it's time for the painful step -- put it into terms you can understand.

I just got my paycheck from church for being music director, and after taxes (and all those fun government fees) and other deductions, I got $557.55.  What does that mean?  It means that for the first two weeks of this year, I kept our church's music ministries alive, attended meetings, worked with soloists and groups, networked, tried to recruit people to the choir, selected music, practiced, performed -- and ended up with only $3.35.  Nearly one whole paycheck went just to interest!  It's even worse if I had chosen to use my paycheck from being a school librarian -- the interest would have swallowed one of those checks whole and still been hungry!

This then, my friends, is why my wife and I are so very anxious to get out of debt.  Right now, I'm spending twenty-four weeks of the year working one of my jobs, just to pay the interest on our loans; I have to work even longer to pay the actual required payment with principal and interest (just over 34 weeks).  This journey then is not just about money -- it's about freedom: the loans disappear, and so does this form of monetary bondage.

I urge you to try this for yourself, and then if you're so inclined, share your results with us in the comments section.