One of the truths is that debt is a chronic pain that just lingers around. It can be termed as an irritating reminder that proves, your cash flow is not as positive as it could be. Well MoneyMindz.com, Best On-Call Financial Advisory Portal got a simple tip which can accelerate your debt repayment plan and get your to debt freedom sooner.
Most Canadians Have A Significant Amount of Debt
We see that often large amounts of debt are accompanied by feelings of shame. It is often reluctant to speak about the topic because as people are embarrassed by the level of debt they have accumulated. They should not feel alone, or ashamed.
Don’t you think it would be nice to spend that money on something of value to you?
Perhaps you want to travel more. How about plugging more money into your emergency and retirement funds? Or increasing the savings for your children’s education? Start a new business? Buy a new home? Whatever financial goals you may have, debt is robbing you of opportunities for as long as you have it.
Your Debt Repayment Plan
If you couldn’t tell, I hate bad debt. While I may not know you, I know how disheartening that looming payment obligation every month can be. This is why I want to share with you a line of credit hack I stumbled upon while reviewing my monthly statements. While it may not revolutionize your world for paying down your debt like implementing a major debt repayment plan like the following:
“The Interest Is Compounded Daily”
One month while going through my statements, I started calculating my own interest payments. It seemed like the interest payments were higher than they should have been. After trying a few different calculations to figure out where the higher-than-expected interest amount was coming from and being unable to resolve the discrepancy, I called my bank. It took them saying just one sentence for it all to click: “The interest is compounded daily.”
It all made sense. My calculations were off because I was basing it on monthly compounding. Monthly compounding means you pay interest on the amount that is left over at the end of the month; while daily compounding interest means that you are paying interest on the balance owing at the end of each day. After you make a monthly payment, interest starts building up every day on the interest you owe for the rest of the month until you make your next payment.
For example, say you make your monthly payment. The next day, interest accumulates on the remaining balance. Fair enough. On day 2 after making a payment, you are paying interest on the remaining balance, AND on the interest accrued from day 1. On day 3, you are paying interest for Day 1, Day 2, Day 3, AND the increased interest accrued on days 1 and 2. This pattern continues until your next payment. You are paying interest on your interest, on your interest! Not cool. The banks are a business though, and they have methods for making money down to a science.
Daily Payments Are Better than Monthly payments
The only way to get around paying interest on interest from one day to the next was to make a daily payment that at least covered the interest. Problem solved! Paying off the interest daily prevented having to pay a growing compounding daily interest! So instead of a monthly payment, I could make a daily interest payment, and then just make the rest of my lump sum payment at the end of the month.
A Word of Caution
If you decide to make daily debt payments a part of your debt reduction plan it is important to consider your type of bank account. Make sure that your account is set up for unlimited monthly transactions. This will allow you to make the transfers without incurring any additional charges. If you have a minimalist plan that only allows a few transactions a month, the extra fees incurred from more transactions will probably not make it worthwhile.
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