Tag Archives: money

The Minimum Monthly Payment Trap 2!

In my last post, I told you two ways your loan balance can continue to increase.

Even when you are making your minimum monthly payments, 

  • if you miss your minimum monthly payment, and/or
  • whenever you are allowed to pay less than your minimum monthly payment
    • your loan balance may continue to increase.
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Other scenarios in which your loan balance will continue to rise:

A ‘debt relief’ program promises you can make ‘smaller payments’

  • than the standard/reasonable minimum monthly payments, and
  • used by some unscrupulous lenders to trap you
    • into perpetual debt.
  • Some government and/or education loans repayment plan are also
    • income driven, i.e. based on
      • how much you earn not
      • how much is required to pay off the loan
        • in a reasonable period of time.
  • Example 1: you owe $25,000, at 15% annual interest rate computed on the balance each month
    • The minimum payment is 2% or $500.
      • “That’s too high”,  you say,  “can you help me?”
      • “Can I pay $200 per month please?”
      • Sure”, the lender says, “just for you!”
      • What you may not realize is that
        • $200 does not cover your monthly interest ($314).s
        • The difference ($314 – $200)
          • is added to your loan balance
          • (the interest has been ‘capitalized’)
            • which continues to earn interest.
  • Example 2: The Education Department Income Driven Repayment Plan (IDRP)
    • provides relief to people allowing them to make payments
      • based on how much they earn
      • on loan balances that earn interest each day
        • until the to total balance is paid off.
    • As above, you may be making all regular required payments
      • but your actual loan balance could be increasing!!

You make regular minimum payments but

  • if the interest rate is high and if
  • the loan balance is continually earning interest,
    • your loan balance will continue to increase; in fact
    • the loan balance will double approximately
      • every 70/(interest rate) years
        • according to the ‘Rule of 70’:
          • an amount that grows at the rate of ‘x’ per period
            • will double approximately every 70/x periods.
      • Example, a credit card balance of $25,000 at 15% annual interest rate
        • will double every 70/15 = 4.7 years (4 years and 8 months)
        • If you make every minimum required payment of 2%,
          • The balance will double every 70/13 = 5 years and 5 months.

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Note: 

  • Some credit card loans will have lower/higher interest rates.
  • Some loans (some mortgages, car notes)
    • have interest calculated over the life of the loan.

Final Take Away

  • If possible, avoid loans
    • for which the interest rate is calculated frequently
      • on the outstanding balance.
  • Make sure your minimum payments at least cover your interest
    • in each period.
  • Make sure your minimum payments covers some of your principal each time
    • If not the make additional payment to cover
      • paying down your principal.

Please follow Reach Ministries on twitter, Facebook, and YouTube (coming)

Email me at reach4himwdray@gmail.com

You Can Do It!  Let’s Do This!!

The Minimum Monthly Payment Trap!!

As a general principle, debt is bad unless

  • It’s an investment debt, examples of which are,
    • education loans in an area and, in an amount that makes economic sense
    • a mortgage,
      • a loan to purchase a house or real estate,
        • for which at least you have a real asset to sell off later,
        • it can be viewed as a form of saving at the least;
        • you may be able to build equity over time, and thereby
        • to increase your net assets position; or
    • an asset that will produce returns
      • greater than the cost of servicing the debt,
        • i.e. your earnings on the asset is greater than interest paid on it;
      • for example, a business or some form of an investment instrument
        • that produces an additional and an ongoing stream of income.

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Long Term Loans,

  • credit cards, education loans, business loans, mortgage loans etc.
  • even for ‘good investment loans’ (debt) have one trap:
    • the ‘Minimum Monthly Payments’ trap.
  • ‘Minimum Monthly Payment,’
    • is the amount you are required to pay on your outstanding balance
      • at regular periods (usually monthly, but also quarterly, yearly, etc.)
      • over the life of the loan;
      • meant to at least cover the interest on the loan.
    • But it may not cover your total monthly interest,
      • which means the amount you owe could be increasing
        • even while you are making regular payments!
  • When you take out a loan, your loan balance
    • which is your total debt on the loan,
    • continues to earn interest,
      • by the day, month, etc. depending on the loan details; it may also
    • increase when you fail to make a payment
      • because you get charged a penalty for late or non-payment,
        • which is then added to your loan balance!

 If your minimum payments do not cover the interest,

    • in each period,
    • the unpaid interest is usually added to your outstanding balance
      • (this is called ‘capitalization’ of the interest)
      • that is, it’s like you took a larger loan in the first place;
    • future interest payments may be calculated on
      • the unpaid interest plus the original balance (‘principal’);
      • which is now the new and higher ‘principal’,
      • therefore your debt is growing, even as you are making
        • regular payments towards it!
  • Example, say you hold a balance of $25,000 on a credit card/loan
    • at 15% annual interest rate computed on each month’s balance, you must pay
      • $3750 per year in interest (25,000 x 0.15) or
      • $308 – $312 per month (3750 /365 * 30 days; or $3750 /12 months) or
      • $500 per month if the minimum payment required is 2%
        • ($25,000 * 0.15)
    • If you miss one minimum payment,
      • the $500 may be added to your balance of $25,000
        • at the end of the period
        • to become $25,500.
        • Your annual interest at 15% is now
          • $3825 per year (25,500 * 0.15) or
          • $314 – $318 per month (3825 /365 * 30 days; or $3825/12 months) or
          • $510 per month if the minimum payment required is 2%
      • Additional fees (penalties) may also be added to your loan balance.
    • If on the other hand
      • you are in financial difficulty and ask for reduced payment
        • that is less than your interest payments,
          • say you want to make a $100 payment,
          • instead of the minimum payment of $500
        • you will be paying less than the interest payment
          • (of $308 – $312 per month);
        • your outstanding interest may be capitalized
          • i.e. added to the initial balance of $25,000:
          • which is $208 – $212: the difference
            • between your monthly interest
              • ($308 – $312) and
              • the $100 you paid
          • will be added to your balance;
          • other ‘late penalty’ or ‘non-payment’ fees
            • may also be added to your balance
          • other ‘finance’ or ‘financing’ charges
            • may be added to your balance and
          • the total loan balance will increase.
        • Then what looks like a relief (less than the minimum payment)
          • turns out to be bad for you in the long run

There’s more. Check back tomorrow!

Follow me on Twitter, Facebook, and (soon) on YouTube;

Email me at reach4himwdray@gmail.com

[Very] Basic Steps for Managing Your Money!

TOO MANY ‘days left at the end of your money’;  the next pay check?  Here are simple steps to help you manage your money!

  1. Know Your Spending Pattern!
    1. Track your every penny for 2-3 months.
    2. Write it down, use Excel.
      1. Make a list.
      2. Write down the Date, Place, Description, Amount,
        1. for every penny you spend!!!
        2. Who says good things come cheap?
  2. Plan Your Spending
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    Photo by Alexander Mils on Pexels.com
    1. Draw from ‘1’ above.
    2. Make a budget.
      1. This is a ‘plan for spending’ based on your income.
      2. Use approximate numbers (averages).
      3. Estimate regular expenses at the higher end (Be realistic!).
  3. Monitor Your Spending Pattern
    1. There are many apps that do this.
    2. Most likely your Bank can also do it for you,
      1. if you do not mind someone else tracking your finances, and
      2. if you do not mind signing up ‘for free’
        1. (nothing is truly free) or,
      3. you can make your own Excel budget.
      4. Excel has many templates for household and other types of budgets.
        1. Here is one that I use:
          1. By George Hayward – Household Budget Template
  4. Keep to Your Plan (Your Budget!)
    1. Automate Regular Expenses:
      1. tithe (10%),
      2. bills, and

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      3. savings and investments (10%).
      4. It will help your credit score.
    2. Keep Spontaneous Purchases to a minimum.
      1. They are the main source of going over budget.
      2. This includes ‘eating out’ on the spur of the moment.
  5. Make a Priority List for Spending, Mine: 
    1. tithe,
    2. bills and obligations,
    3. necessities (health, food, etc.),
    4. emergency Funds saving,
      1. (six months worth of regular monthly expenses)
    5. savings and investments, and
    6. leisure, and other discretionary spending.
  6. Don’t hold Credit Card Balances
    1. The interest rate is too high (often 10 – 25%) on balances.
    2. Even when you make minimum payments,
      1. your balance is still increasing and
      2. your outstanding it will double in almost every 4-7 years!
  7. Learn How to Invest and Grow Your Wealth – More on that later!

AND YOU ARE ON YOUR WAY!

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YOU CAN DO THIS!

LET’S DO THIS!

 

Regrets?!

Not Many

  • Thank God!

I wish I spent more

  • one-on-one time
    • with my children
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      Photo by Nicholas Githiri on Pexels.com
      • when they were younger
    • making more memories
    • listening
      • not more money
  • Others?
    • I would have chosen
      • Less of me and
      • more of others

As you grow older

  • This is the kind of legacy that
    • seems more valuable
    • requires no money, wealth, or worldly success
    • has far reaching implications
    • can change the world.
  • The kind that gives the greatest pleasure
    • when the children and grandchildren
      • celebrate you
        • on your birthday.

Philippians 2.4

  • Let each of you look
    • not only to
      • his own interests, but also
    • to the interests of others.

Do Your Homework!!

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DO YOUR HOMEWORK!

I had a dream early this week (last week of June 2019).

It is one of those dreams

which you remember vividly

as soon as you wake up,

every detail, every nuance

is very clear to your mind

almost as if you really lived the events

in real life.

In fact I think it was a message from the Lord and

I will like to share it with you.

In my dream,

I was in a third world country,

could be Sierra Leone, West Africa, or some other African Country.

And yet, it can also be in the United States, South Carolina, or Illinois,

places I have lived for significant periods of time;

(funny thing about dreams –they can fit in multiple locations at once).

In my dream

I was looking to buy a used car –

I was looking for a deal – because

I did not want to pay too much and yet

I wanted a very good car –

in fact a BMW.

I had this friend

(nameless in the dream, but

I had known him for quite a while

in the dream.

He had gained my trust.

It appeared that he was good at making the type of connections

I was seeking

to get me a very good car –

in the dream!

As a result,

I gave him a significant sum of money –

Over $10,000

in the dream.

Not too long after he called me to say he had found the perfect  car for me, and

I was excited!

I went over to his car shop

(he was a mechanic)  and

the first thing I noticed were a couple of arm chairs,

old wooden and reconditioned arm chairs classics.

Someone had taken what looked like a BMW logo decal and

pasted it on the front end of one of the arms

on each of these chairs.

I thought to myself,

“I hope nobody is trying to pass this off as a ‘bucket’ seat of a BMW car”

 “Hmm, this does not have anything to do with my car

But I followed my ‘friend’ into his shop.

A privately owned body shop

His shop was a bit away from any main road/street –

It was a non-franchise shop

not like Meineke, or Tuffy, or Firestone, or anything like that.

The floor was bare; grease and dirt had formed successive layers over time.

It was somewhat narrow, tall, and

there’re were parts of old cars

at different stages of being put back together.

The length of the shop

was about a semi-trailer and a half long,

                with hydraulic lifts, tool boxes etc.,

strewn all along the building, such that

there is no way to tell what is at the back of the building

when one enters the door at the front.

So my ‘friend’ takes me into his shop

but I do not see a car

            in the dream.

I am thinking:

“It must be at the back,

at the end of the building”

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                in my dream.

Halfway through the building

all I can still see are scraps,

here and there, and then

the shell and/skeleton of a car, but

no shiny, new BMW

of my dreams!

Then, I see this old skeleton of a car!

There were

no panels,

no doors,

no floor carpets,

no rear-view mirror,

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no side view mirror

no parking, head, signal or brake lights;

no seats, and the steering wheel

was mostly metal

in my dream.

The color was rusted or corrupted away;

it was hard to tell

what color this frame of a car was, and

it was obviously very old.

It was the type of thing

one would find in a junk yard –

after it had been stripped away

by parts scavengers.

My ‘friend’ began to tell me

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about how this ‘skeleton’ was going to be,

a classic,

the envy of my friends,

the perfect car

of very high antique value

that I was longing for,

when he was finished with it.

I need not worry at all

in my dream.

The antique armchairs

at the front of the building,

were indeed the ‘pilot’ ‘bucket’ seats

for the car

in my dream!

In my dream,

I was aghast.

Shaken to my core.

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How can it be?

I was angry with him.

I sat him down, and began to tell him that

I was no longer interested in this project; that

I wanted my money back.

As I am speaking to him,

in the dream,

I am realizing that

he was not my friend, that

he was a scam artist, and that

I had a monumental task

to get my money back from him.

I am thinking

will I have to go to the police?

Is it going to be nasty?

Does he even have my money

to give back to me?

How did we get here?

Do your Homework!notes macbook study conference

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THEN I WOKE UP!!!

From my dream!

The dream remained fresh in my mind.

It seemed to me that the fact that

I remembered it so clearly,

could be taken as a message

(from God!)

to me, and

to others.

I thought,

I must pass the lessons

of my dream to others.

God gave me this dream

as a teaching moment

that I and others might learn from it.

So, what are the lessons?

 ADDICTED TO ‘EASY’!

photo of beach chairs on seashore
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I like most people,

(I think) am ‘addicted to easy’.

The phrase is not original with me.

I first heard Pastor Tom Harding

of Alive Church, in Central, SC,

use it once as he described his own personal journey,

and I immediately identified with it.

Why did I want to have someone else

in my dream

do the leg work for me

to buy a good car?

With so many internet tools at our disposal

to search for stuff we want,

why ask someone

to do it for you,

when you can do it yourself?

Why did I not do enough of my own homework

about whether I can trust this person

with my hard earned money?

Why was I so quick

to part with my money to someone

who would in the end scam me?

 

QUICK FIXES

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Why did I not want to wait

in my dream,

until I had saved enough money

to buy the quality car

that I really wanted?

Why am I asking someone to perform ‘magic’

for me

(i.e. do a miracle –

give   me the desire of my heart

with little cost/effort

on my part)

when I can work my own way

towards my own ‘miracle’?

Why did I go looking for a ‘miracle’

of a nice car at below market value

now,

when a better opportunity might present itself

to me

if I was patient enough to wait for it?

Why did I not wait

until the perfect

and (better) opportunity

presented itself

to buy the car that I wanted?

Why do I have to have it now?

 

TOO TRUSTING!

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Too late!

After I woke up, and

going over the details of the dream,

I realized that in the dream,

I did not specify

the year,

model,

condition,

timeframe that the car was to be purchased, and

the mileage of the car that I wanted.

I did not specify that

I did not want a rebuilding project

for a car,

nor what would be the exit arrangements

if I or my ‘friend’ were dissatisfied

at the performance of the agreement

we were entering into.

I just left it all up to my ‘friend’.

That is not to say

I had no true friends

in the dream

that I could trust for very important aspects

of my life.

It was just that ultimately,

I had allowed others to become responsible

on my behalf,

to make decisions

which were mine alone to make.

Why?

Naivety,

forgetfulness of the

self-centeredness, and yes,

sinfulness

of the human heart.

Most people would put their interest first over that of the others

If/when it comes to a choice

between those two –

including me –

alas if not all the time

I would say most times,

but for the grace of God!!

So?

DO YOUR HOMEWORK

man in blue shirt siting on tree branch wearing safety harness holding ropes on left hand and chainsaw in right hand
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Prov. 10.4

“Lazy hands

make a man poor, but

diligent hands

bring wealth”

AVOID QUICK FIXES,

Prov. 16.32

“Better

a patient man

than a warrior,

a man who controls his temper

than one who takes a city”.

 

DON’T BE NAÏVE!!

Prov. 22.3:

“A prudent man

sees danger and

takes refuge,

but the simple

keep going and

suffer for it.”

Blessings

Dr. Ray

Do your Homework!!close up of photo of books