# Is paying off my debt worth it?

/### IS PAYING OFF YOUR DEBT WORTH IT?

You wake up in the morning, still trying to recover from the late night of Netflix watching and mountain dew. Another day in the grind...you have contemplated many times quitting your job and doing something else, but you need this job to afford the lifestyle that you live. If you don't get your paycheck, then the car payment won't get paid. The student loans will just sit and accumulate more interest, as you put them in forbearance.

This is pretty standard for an American lifestyle. Go to school, go in debt,... buy house, go into more debt,... have kids, go into more debt.

Does this sound familiar? For me, that is how it went.

### the interest is killing you

The number one reason it is worth paying off debt is because of interest. First, let's understand how credit card interest works, and the reason people stay in debt.

There are two numbers that we will use to determine how it works. The __Annual Percentage Rate (APR)__ and the last credit card statement. For our example I will use a balance of $1000.00 and an APR of 12%

### APR isn't really charged Annually...more like daily

It is charged daily...yes, 365 days a year. So, let's figure out the daily interest rate on $1000.00 with an APR of 12%. To do that, you just divide .12/365 which equals about .033% per day. (This is your periodic Interest rate)

A bank charges interest on your average daily balance. (The average unpaid balance over the course of the month.) How convenient.

So, our balance is $1000.00, if we wait 15 days for the interest to accrue, and then on day 16 make a payment of $200. Then wait until 10 more days, and make a payment on the 26th of $500. Our daily average balance is (15 x $1000 + 10 x $800 + 5 x $300) /30 = $816.66 (yikes!!) No wonder, it takes so long to pay off. We paid $700 and we still have a balance of over $800!!! It's insane.

Long Story Short...Pay your credit card debt off as fast as you can!!!

### SAVE, SAVE, SAVE...

In their book __The Elements of Investing__ , Authors; __Burton G. Malkiel__ and __Charles D. Ellis__ write that the first step is Saving.

And here are the rules:

- Never, Never, Never take on credit card debt
- Credit Cards are great...but not for you.
- The secret of getting rich slowly but surely, is the miracle of compound interest

### The miracle of compound interest

How does Compound Interest work? It's pretty simple really, but you need to know how to calculate it if you are serious about making money and paying off debt to achieve financial freedom.

Let's say we have invested $1000.00 that recieves about an 8% return in interest every year which is compounded monthly. If we don't touch that money at all and just let it accumulate. We will have at the end of the year $1083.00. That's without touching it.

Let's say we don't touch it for the next 30 years, and get the same return of 8% for 30 years compunded monthly. What will our total amount be?...Yep, that's right $10,935.73. And you didn't even add money to it.

### Where:

**P= Principal Balance ($1000.00)r= Rate of interest (decimal .08)n=Number of times compounded in a yeart=The duration of time **

### WhAT if we change it up a bit...

Let’s say that we added $200.00 month to our principal balance of $1000.00 with an interest rate of 8% compounded monthly. Using our original equation above, and then adding a new equation:

PMT * (((1 + r/n) ^nt - 1) / (r/n))

#### Let's put this into our example:

P = 1000. PMT = 200. r = 8/100 = 0.08 (decimal). n = 12. t = 10.

#### If we plug those figures into the formula, we get:

Amount = [ Compound interest for principal ] + [ Future value of a series ]
Amount = [ P(1+r/n)^(nt) ] + [ PMT * (((1 + r/n)^nt - 1) / (r/n)) ]

Amount = [ 1000 (1 + 0.08 / 12) ^ 12(10) ] + [ 200 * (((1 + .08/12)^120 - 1) / (.08/12)) ]

Amount = [ 2219.64 ] + [ 200 * (1.21964 / 0.006667) ]

Amount = [ 2219.64 ] + [ 36589.21 ]
Amount = [ $38,808.85]

So, the investment balance after 10 years is **$38,808.85**

What if you started investing when you were 30 and put $500/ month at 8% compounded monthly…what would the amount be in 30 years?

The investment balance after 30 years is **$309,007.60**

**Are you beginning to see how investing is the way to make money, and improve your future? The sooner you start, the more you will have.
It’s all about having a plan, and letting your money work for you!
Spread your investments out…**

**Ecclesiastes 11:1-6 says:** **Cast your bread on the surface of the waters, for you will find it after many days. Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth. If the clouds are full, they pour out rain upon the earth; and whether a tree falls toward the south or toward the north, wherever the tree falls, there it lies. He who watches the wind will not sow and he who looks at the clouds will not reap. Just as you do not know the path of the wind and how bones are formed in the womb of the pregnant woman, so you do not know the activity of God who makes all things.
Sow your seed in the morning and do not be idle in the evening, for you do not know whether morning or evening sowing will succeed, or whether both of them alike will be good.**

Hopefully this post has helped you to understand that compound interest can either be your best friend or your biggest enemy.

#### STEPS TO BUILDING WEALTH:

- Get on a budget, spend less than you make
- Pay off your debt as fast as you can
- Save, Save, Save
- Invest
- Give Generously with your time, talents, and resources

#beunstoppable

Stephen

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