Debt-Free Forever Gail Vaz-Oxlade (best ereader for epub TXT) 📖

be whatever payment amount you agreed to, since to pay less would mean you would be in default. The bank statement for the account from which this payment is coming will show how much you’re paying every month, so check there to make sure you put in exactly the right amount. No rounding!

Line of credit: The minimum payment on a line of credit is usually the interest accumulated for the month. If it’s not listed on your statement

1. Check the outstanding balance on your line.

2. Multiply it by the interest rate that applies.

3. Divide by 100.

4. Then divide again by 12 to get the monthly interest payment on your current balance.

Taxes: The Tax Man is often unwilling to wait for more than a year, so the minimum payment on a tax bill is whatever it takes to get it cleared up in 12 months or less. Take the amount of your back taxes and divide by 12.

Overdraft: Overdraft never has to be repaid unless it is “called”—cancelled by the lender—so it’s like quicksand … you just sink deeper and deeper every month. But if you’re determined to live debt-free, then you need to get that overdraft paid off. Take the amount of overdraft you owe and divide by six to get a minimum payment amount that would get you out of overdraft in about six months.

The RRsP Home Buyer’s Plan: The Home Buyer’s Plan (HBP) has to be repaid on a schedule—the minimum is 1/15 every year, but you can pay more—and failure to do so will add to your tax bill. Divide your total owed by the remaining number of years you have to repay the HBP and then divide by 12 for your monthly minimum.

Buy-now-pay-later financing: Buy-now-pay-later financing doesn’t have to be paid at all during the “grace” period, but the minute it comes due it’s payable in full or the financing kicks in at a whopping interest rate back to the date you took home whatever it was that you bought. To avoid the financing costs, you must have the whole kit and kaboodle paid off on time. Take the amount you still owe and divide it by the amount of months, less one, remaining on your grace period. This is your ideal monthly minimum.

Pay-advance loans: Pay-advance loans have to be repaid in full in your next pay period. Of course, the pay-advance people will be happy to extend you another loan at their rapacious interest rates if you’re a little short!

So now your chart looks something like this:

Okay, time to face the music. Add up how much you owe, and what your total minimum monthly payments are. So, in this example, the total amount owed is $135,630 and the minimum payment is $3,065.

STEP 3: TAKE A BREATH

If your eyes are popping out of your head or your stomach has sunk to your toes, take a breath. What you are doing—facing up—is hard. Don’t panic. You’re taking steps right now to make it better. This isn’t the time to be scared stiff. Financial paralysis is often a result of not knowing how you can possibly make things better. Don’t freeze. You are making progress and you need to stay focused on what it is you’re trying to accomplish. Running and hiding at this point won’t make you feel better; it will just delay the inevitable and might, in fact, make things worse. So keep breathing and keep moving forward.

STEP 4: FIGURE OUT WHAT YOUR DEBT HAS BEEN COSTING YOU

Every month you make your minimum payments like a good little borrower, and then you pat yourself on the back for making your minimums on time so you have a great credit score. But have you ever added up what the interest on all the debt you’re carrying is gobbling up from your cash flow?

Well, now it’s time to figure out what all this debt has been costing you. Back to the list. Take the first amount you owe and multiply it by the interest rate and then divide by 100. That gives you how much interest you’re paying on that debt in a year. But we want monthly amounts, so you’ll have to take that number and divide it by 12.

Here’s an example. The department store credit card with the $1,200 balance at 28.8% is costing $28.80 a month in interest: $1,200 × 28.8% ÷100 ÷12 = $28.80.

It’s easy to look at the interest you’re paying on a single piece of credit and think, “Hey, that’s not so bad.” Add them all up and you’ll see just how much you’re contributing to the bottom line of your lenders. Yup, add ‘em all up now.

Are you surprised at just what it’s costing you a month in interest on all your debt? And that $150, $300, or $500 a month isn’t doing anything to reduce your debt; that’s just the price you’re paying for having used someone else’s money to buy stuff. Want to see what that interest is costing you each year? Take your total monthly interest cost and multiply by 12. Remember, that whopping number is doing nothing to reduce your total debt at the bottom of the Amount Owed column. That’s just the interest you’re paying for the privilege of using someone else’s money to scratch your retail itch.

GAIL’S TIPS

While it may have become socially acceptable to make only the minimum payments required on our debt, this is a really bad idea. Making only the minimum payment each month is like being caught in a hamster wheel: you’re constantly running, but you never get anywhere. Minimum monthly payment amounts have been designed to make your debt linger so lenders profit. Low minimum amounts free up cash flow and encourage people to spend more money. And if you stick with the minimum, it could take 10 years or more to get out of the hole, by which point those $160 shoes