How Much is Student Loan Interest Really Costing You?

Published on June 14, 2017June 19, 2017 by Danielle YB Vason2 Comments

The rising student loan debt is one of the greatest financial problems plaguing millennials, especially millennial women. As of 2014, women account for 55 % of students enrolled in four-year colleges in the United States, according to the Federal Education Department and the figures continue to lean in favor of higher educated women. With the average student loan debt at a little over $30,000 and growing, how are we ever going to eliminate student loan debt at all? The answer lies first in understanding the numbers.

By definition, a loan is something that is borrowed that is expected to be paid back with interest. The operative word in that definition is “interest”. When you borrowed money from the government or your loan provider, you were given this money with the expectation that they will get their money back from you. In fact, they expect you to take your take, defer, and get off track because their business is in the interest and not the actual repayment of the original loan. Let me say that again for you. They make their money on the interest because you are expected to pay back what you originally borrowed. Student loan interest accrues daily once you are in your repayment period, which usually begins 6 months after your graduation date. So what does that mean exactly?

How Does Student Loan Interest Add Up?

I will use my student loan numbers to help you visualize why interest will keep you in debt if you don’t start to get aggressive. The exact math on this chilling realization is why millennials have a record amount of debt and a lower amount of home ownership. I have two loans that were consolidated for a collective original loan amount of $24,422.77 back in 2007. As of today, I have paid $21,189.89, which means that if this were an interest-free loan, I would only be $3232.88 away from having the loan paid off completely. However, because of interest, I still owe $16,738.90. How’s that you ask? Well, in the 10 years that have had this loan, interest has accrued daily. If you have studied your loan, you will notice that your daily accrual rate will change over the life of the loan. If you are paying down your debt, your daily rate will eventually reduce as a result of the reducing current balance. However, if you are one of those out of sight out of mind people who knows you have student loan debt that you have ignored, paying a reduced payment when you really can afford to pay more, or continually delaying your payment period, your daily rate is increasing…well, daily.

How To Beat Your Student Loan Debt

Currently, my student loan interest in accumulating at $3.09 per day/ $1127.85 per year, which is the lowest it has ever been. To beat the system, you must pay your debt down at a faster rate than it is growing. At $3.09 per day/ $92.70 per month, my snowball must be more than the monthly interest to make a difference. Now that you have seen my numbers, it is time to look at yours. To calculate your daily interest rate you must have the following numbers ready: your current balance and your interest rate.

In the past two months, I have watched my current balance drop at a faster rate than usual. That is because I have started making my regular monthly payment as well as an extra payment of money saved from the 52 Week BINGO money challenge. I was motivated to get a little more aggressive with paying down this loan when I set a micro goal for myself to have my loan under the $15,000 mark by the end of my birthday month (August). Coming up with a plan to beat your student loan debt first starts with the numbers. If you don’t already know your numbers, I urge you to look up your current balance and interest rate, calculate much your interest accrues daily, and as soon as you can, start making an extra payment above your monthly interest rate to get your debt moving in the right direction. Instead of focusing on just how much you have left to pay, pat yourself on the back for how far you have come on this debt journey. You can do it! You have to do it so you may as well do it as quickly as possible so you can put that money saved toward your next baby step toward financial freedom.

How The Debt to Credit Ratio Affects Your Credit Score

Published on February 2, 2017June 30, 2020 by Danielle YB Vason2 Comments

debt-to-credit-ratio-credit-score-she-makes-cents Last year, one of my girlfriends and I decided that we were going to pay off our credit cards at the same time. I was paying down debt to start my snowball and get me one step closer to Dave Ramsey’s Baby Step Three. She was knocking down her revolving debt before she purchased her first home. In the process of us paying down our credit cards, we were both offered limit increases from our perspective credit card companies. I accepted the increase and she declined. Her rationale to decline was that she was trying to get rid of her monthly credit card payments because a limit increase would only entice her to spend. For me, accepting the almost $5,000.00 increase meant that I was lowering my debt to credit ratio.

What is A Debt to Credit Ratio?

A debt to credit ratio or a credit utilization ratio is just as it sounds….It’s the ratio of how much money you owe a particular debt as compared to the credit limit. If you have $4,000.00 balance on $10,000.00 credit limit, your debt represents 40% of your credit limit. The lower the ratio or percentage the better impact one’s credit score.

How The Debt to Credit Ratio Affects Your Credit Score

Outside of your payment history, your “amount owed” or debt to credit ratio, is the second highest factor in calculating an estimated 30% your credit score. Keep your balance under the 30% mark and you stay on the lower side of the debt to credit ratio, which is where most personal finance gurus would urge you to stay if you have to carry a balance.

At the same time that my credit card limit jumped up $5,000.00, my balance was quickly decreasing and I had a credit score of 786. The next month it moved up six points and stayed that way for three months. In July, the month I paid off my credit card, it jumped to 806 for about two months. I started using my credit card just a little bit carrying a small balance and it went back down to an 800 for about three months. I was on a high when I saw my score increasing so to see the decrease was disappointing…even if it was only a 6 point drop. I vowed then to do whatever I could to not let my credit card balance roll over to the next month ever again. I am happy to report that I currently have an 810 credit score. Moral of the story… lower your debt to credit ratio and it will have a positive impact on your credit score. You can do this by making on time payments to lower your debt balances and if you are offered a limit increase, take it only if you can continue to be responsible with your financial goals.

{Financial Cents} BINGO Money Challenge Hits MAJOR Milestone

Published on June 18, 2016April 13, 2017 by Danielle YB Vason2 Comments

Hello Lovelies! I have some exciting news to share with you this morning. Yesterday I crossed off $14.00 – doesn’t sound too exciting yet, but wait for it….. – on the 52 Week BINGO Money Challenge. That $14.00 put me at the $1,000.00 mark for this money challenge! –INSERT HAPPY DANCE!!!!

On the same day that I hit the $1,000.00 mark in savings, I also hit the under $1,000.00 mark in my credit card balance!!! While I am proud of the financial gains made in the first six months of this challenge, I am even more excited about the about the savings habits I have created for myself. I believe that creating a healthy savings routine is the first step on my journey to DEBT FREE living. I was chatting with a girlfriend of mine who made the observation that I have only been focusing on saving and not making increasing my sources of income a priority. In a lot of ways she was correct. I have placed a serious focus this year on saving because in the past, I would start the year strong with savings goals and plans for myself only to find some of them abandoned by mid-year. That being said, splitting my focus between increasing streams of income and saving would have only created more problems at that point in my journey when I wasn’t steadfast in making saving a priority. The phrase, “More Money, More Problems”, exists for a reason. Without a healthy savings routine and more income coming in, I could have easily created more debt and worsen bad spending habits. I have spent the first six months of this year really focusing on correcting past bad behaviors and replacing them with healthy habits. Now that I have solid saving habits, I can start also focusing on increasing income and using that increase to move on the next snowball in my overall financial plan- student loans debt. I attribute my success to personal will, saying no to social (sometimes), and having accountability partners, like readers of She Makes Cents to help keep me motivated. I would love to hear how you are doing with this challenge… the good, the bad, and the ugly.

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52 Week Bingo Money Challenge Milestone

Published on April 5, 2016April 5, 2016 by Danielle YB VasonLeave a comment

If I told you the last five days have been a whirlwind, I’m not sure you could even comprehend what I mean. In the past five days I served as a juror on a trial for two days, driven from Atlanta to Jackson, Mississippi, attended a funeral, got back on the road for the six-hour car trip home, just in time to make it to a Sunday wedding for my sorority sister. That being said, I missed last week’s check in and the March recap of the 52 Week BINGO Money Challenge.

Check out a few pictures from the wedding!

For the first week of April, I decided to cross off $23.00 + a bonus of $75.00. My first April contribution, including the bonus, is only $4.00 less than my entire last month’s savings. I’d say I am off to a good start for month. Overall, I have a saved a total of $556.00 that I have been using to make extra payments toward my credit card debt. Every extra payment is helping me shave off the repayment term, shave of compounding interest fees, and is improving my credit score because my debt to credit ratio is increasing. I would LOVE to have my credit card balance under the $500.00 mark by the end of May. With a balance of $2400.00+, only time and discipline will tell. Until then, I will keep crossing off numbers on my BINGO money sheet.

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{Financial Cents} A Quick Tip to Help You Pay Down Debt

Published on February 24, 2016December 22, 2016 by Danielle YB Vason3 Comments

Happy Hump Day Lovelies! I wanted to give you a quick tip that I am using to help me pay down my credit card debt. If you can, I would recommend you plan your payments on debt such as your mortgage and credit cards to bi-weekly payments. Since there are two months out of the year that have five weeks, you end up with an extra month’s payment at the end of the year. Those payments can be applied directly to the principal, which I recommend, or give you the opportunity to have these loans paid one month in advanced.

PROS

It helps you pay off debt faster
Reduces the amount of interest you have to pay back over the life of the loan

CONS

All lenders and credit card companies do not allow you to split your payments. If this is the case, you can create a money envelope for that extra payment you will have at the end of the year and use it to pay on top of your monthly minimum. It’s not a true “con” on the pros and cons list, but it does require an extra step and discipline to not spend that money

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{Week 21 Update} 52 Week Challenge Helped Me Hit A Financial Milestone!

Published on May 24, 2014May 24, 2014 by Danielle YB Vason4 Comments

It’s week 21 of the 52 Week Challenge and I am five weeks away from the half-way point of the challenge I started on Friday, January 3, 2014. Over the course of 21 weeks, I have saved over $500.00 dollars that I would have spent on random bits and baubles. Doing this challenge, along with deciding to play a little Russian roulette with my finances, has helped me to pay off my ENTIRE credit card balance three months ahead of schedule.

While some may think a money challenge like this is not worth the effort, I strongly disagree. Not only are you putting money aside for whatever your current financial goal may be, be it paying down debt, saving for a new car or home, or planning a wedding, you are also altering your previous financial behaviors. Personal finance is 80% BEHAVIOR and only 20% HEAD KNOWLEDGE! Just taking the steps to start a challenge like this means that you are getting into the habit of saving. Becoming successful in the challenge means that it has become a part of your lifestyle and not a temporary behavior change. I urge you, if you have thought about ways to save money to try this challenge BINGO style. It’s the easiest way to save extra money under your own terms.

Email me for a copy of my 52 Week Challenge Sheet & Start the Challenge TODAY!

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{Week 13} 52 Week Money Challenge Bingo Style

Published on March 28, 2014April 4, 2014 by Danielle YB VasonLeave a comment

Someone recently asked me “what was the point of doing a money challenge, it’s not like you are saving a substantial amount?” My reply was simple, “every little bit helps me get one step closer to my goals”. I am very serious about having a zero balance on my credit card by August 1, 2014 and using funds saved from this challenge helps me pay off my balance faster. Today, I crossed number 17 off my bingo style money challenge sheet which gives me a grand total of $319.00 additional dollars added to help pay off the balance on my cards. A while ago, I decided that instead of payment the minimum + the 52 Week Challenge weekly payment I would decide on a set payment to make every two weeks and add the money from the challenge on top of that. This has allowed me to chop off interest payments as well.

How Are You Doing On the Challenge?

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Finance Blogger, Danielle YB Vason of She Makes Cents, reveals her motivation to pay off debt.

{Debt Management} How to Shorten the Length of Your Loans & Reduce Interest

Published on September 10, 2013April 3, 2014 by Danielle YB Vason10 Comments

Wanting to get control of your finances is great, but there is nothing like the empowering feeling of knowing when this MAJOR life goal could actually be attainable. After examining my debts, pay off amounts, and interest rates, I am proud to announce that my magic number is 8 years and 3 months to be debt free! Having an end date for a goal helps to make it more tangible and keeps me encouraged to hit my payment milestones from my personalized Financial Plan.

One Year from Now- Operation Credit Card

In January of this year, I revealed that I racked up $5300.00 in credit card debt, after getting it down to a zero balance. It happened by not adapting my spending habits to my drop in income. Today, that balance is now around $3400.00 by paying a little more every month on the minimum and doing the 52 Week Money Challenge (Bingo Style). Dare I say it out loud, I will have NO credit card debt by this time next year (insert fireworks here)! I’m truly proud of the way I have tackled this particular debt obstacle because I’m doing it at my own speed. I don’t even miss the extra money that I’m using to knock the balance down faster. If I were okay with just paying the minimum, it would take me 4 years and 3 months, instead of one year, to complete step one of my financial plan. Once the credit card is paid off, my monthly credit card payments will become extra payments to my student loans and so on…this is called the Snowball Method.

Four and a Half Years from Now- Goodbye Sallie Mae

I have a love/hate relationship with Sallie Mae. Although we go back about ten years, she is not my friend nor is she yours. Don’t let her fool you. Yes, in times of financial need, she was there but in reality most people end up paying more than double for their educational loans. Currently, I pay the minimum $200 per month for my educational loans with more money being applied toward interest and not the principal. As I’m sure you know, paying just the minimum and nothing more will result in years and years of interest and a longer pay off timeline. In fact, by adding the money I would normally use for Operation Credit Card to make two or three lump sum payments per year toward the principle, not interest, I will shorten the length of my loan by 10 years and 11 months. Five years ago, I was a recent college graduate and while a lot has happened in that time, I still feel like time flew by. Knowing that these next five years could go by just as quickly helps keep me motivated. One day, four and a half years from today, I will be able to say goodbye to my financial frienemy- Sallie Mae for good.

Eight Years and Three Months- Debt Free

A lot can happen in eight plus years that could slow down my timeline or cause me to come up with a new goal altogether. Regardless of what life throws my way, I hope a victorious sprint toward financial freedom is in my foreseeable future. In eight years, my home will be a rental property providing is a great form of passive income. Having it completely paid off allows a greater financial contribution to my household. The idea of never having to think about another mortgage payment for my current house is a blessing in itself and I plan on tackling this debt by using the Snowball Method. In the same breath that I say goodbye to Sallie Mae, I will be begin this last phase by saying hello to extra payments, consisting of my monthly credit card payments and Sallie Mae payments, on top of my current mortgage.

What’s the point of all of this? Sure, I could continue to pay the minimum on my bills every month and I will forever owe someone but I have 17,636 reasons why that won’t work for me. Yep, having a plan and attacking my plan will help me save an overall of $17,635.15 in interest payments. While yes, I am at the beginning of my journey, I take solace in knowing there is light at the end of the tunnel.

How Long Will It Take You to Be Debt Free?

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{Financial Cents} How To Make A Financial Plan

Published on April 11, 2013March 13, 2018 by Danielle YB Vason13 Comments

Sometimes I need to remind myself that a goal without a plan is just a wish. Every morning I would pray for financial blessings but somehow found myself going through the motions, which was slowing my progress to my goal of zero debt. For me, it is about finding that balance between enjoying my lifestyle and making financially sound decisions. I have been bitten by the travel bug and I can’t wait to explore the world, I live for bottomless mimosas at brunch, and I believe shoes and the right lipstick makes the outfit. However, I also believe in building hefty savings, going into marriage without bad debt (i.e. credit card and student loans), and building generational wealth. I must agree with Dave Ramsey, financial guru, who affirms, “Personal finance is 80% behavior and only 20% head knowledge”. I am working on the behavior part. I found that even though I enjoy shopping, I’m more likely to shop when I’m bored. Recently, I started filling that boredom with QT with the Mr. walking and exploring our city. I am focusing on better decisions, which will yield better behavior. Every cause has an effect and every decision has a financial consequence; that’s why coming up with a personalized financial plan has been my saving grace. Yes, I prayed for financial blessings…I still do, but I have also added the caveat that with financial blessings come financial responsibility.

Check Out My Financial Plan Outline!

1. Write down your debt & don’t forget to include people you owe money. I was talking with a childhood friend who says he had zero debt. As we got to talking it was revealed that he did not include the almost $7,000 he owed to a family member and the card he maxed out in his college days. Out of sight, out of mind, I guess. Once we dove deeper into our conversation, he and I started listing our debt. At the time of this conversation, my list was simple- one credit card, student loans, and mortgage. His, well…let’s just say that I composed a very sobering list on his behalf that included all the debt that he could remember. Seeing your debt listed and then learning out to find out just how much you are paying in interest makes it all VERY REAL.

2. Emergency Fund Minimum. Baby Step One of the Total Money Makeover is to get your emergency fund to $1,000 if you have an annual income of $20,000 or more. “Your car will need repairs and your kids will outgrow their clothes. These are not emergencies; they are items that belong in your budget. If you don’t budget for them, they will feel like emergencies”. It was this statement from the book that caused me to stop dead in my tracks and redefine what I considered an emergency versus saving.

3. 52 Week Money Challenge- BINGO Style. This was actually a part of my New Year’s Resolutions every year. The challenge is to make a weekly deposit that reflects the number of weeks of the year. For example, on week one you deposit $1.00 and on week 27 you deposit $27.00 and so on. I took the challenge one step further by remixing it into a BINGO style which makes it easier to be successful. The most I have ever saved in a year is a little under $2,000.00 and I am hoping to beat that very soon. I have used the 52 Week BINGO Money Challenge to pay off my credit cards completely, save for my birthday plans, and even gifts for family and friend during the holidays. Want to join this money saving challenge? Click here for more information and to grab your FREE copy of the money guide.

4. Tackle Your List. I revealed in the post, Tackle Your Credit Card Debt Today, that as of January I started with $5300 in credit card debt. I have reduced my debt down to $0.00 by paying a little over the minimum and applying the money challenge money to the balance EVERY Friday (I have yet to miss one), but that was interest is killing me. While making additional payments to the credit card, I am making the minimum payment toward my student loans and mortgage. Once the credit card was paid off, I will now apply that money to extra payments to my student loans and so on…this is called the Snowball Method. Now, I will confess, if I had more debt, I would recommend switching between the Snowball Method and the Avalanche method, which we will discuss later in the Financial Cents series.

5. Emergency & Savings. Don’t forget to save that money you are no longer paying to others. Use it to prepare for the future. Emergencies will arise and more than likely something will come up that will cause you to tap into your savings….be prepared.

{Financial Cents} Is Your Way of Thinking Making You Poor?

Published on March 28, 2013January 26, 2022 by Danielle YB Vason4 Comments

Just as slaves born into slavery can’t visualize freedom, we Americans don’t know what it would be like to wake up to NO debt.
–Dave Ramsey, Total Money Makeover

Your alarm clock sounds, alerting you that a new day has come. You awake to find yourself owning a car without a car payment, a home without a mortgage, an education without student loans, and credit card(s) with a zero balance. How did you get to this financial freedom? Did you a) win the lottery, b) rob a bank Sugar & Spice style, or c) align your behaviors with your long-term financial goals? Well, the answer to the question depends on whom you ask.

I told a friend of mine that I was working to become debt free and she looked me right in my face and laughed. I mean laughed to the point of tears while telling me how unrealistic I was being. “Everyone has debt”, she alleged. If this were her outlook on financial freedom, I would guess that she could imagine a debt free life comes only as a result of a windfall. She will either rob the bank or win the lottery. I, however, understand how even the most minute sacrifices will help me get closer to my financial goals. I have to think beyond the day-to-day and month-to-month if I want to build generational wealth. Financial expert, Dave Ramsey adds, “We have been sold debt with such repetition […] that it’s hard for people to imagine what it would be like to have no payments”. Debt shouldn’t be the normal status quo and I am not comfortable adopting that mind-set. When the day comes when I wake up with no mortgage, no student loans, and no credit card balance, I know it will be a result of my financial plan and my commitment to it.

Is Debt Normal? Share Your Thoughts…