Watch Me Knock Out $5000 In Debt (Case Study)

in-debt

Part 1 of Case Study Series

 

I’m inviting you to observe me knock out $5000 in Debt and how you can too!  This will be part of an ongoing series where you get to watch over my shoulder and learn my unorthodox way of knocking out debts for good. 

 

It’s the kind of information big credit card companies and loan officers just don’t want you to know.  In fact, they would rather keep you in the dark and in Debt with many of their shady tactics.  This is one of the reasons I started the Financially Elite Blog to help readers like you become educated and take action against debt and finally achieve Financial Freedom!

 

I just know that you are going to enjoy this case study series of how I get myself out of debt.  In fact, just like my other pillar post – Case Study, This Little Tool Helped Me Build Wealth Over $20K or How I Live Without Credit Cards.  Yes, these aren’t your traditional blog posts or life experience, but who want to be ordinary?  Definitely not me nor you I’m sure.  In fact, we’ve been put here to live an extraordinary life.  So, let’s get into the meat and potatoes of how to rapidly gain wealth and become financially free while in debt

Quick Story of Why I Racked up $5000 Worth of Debt

Ok, so if you’ve been reading the Financially Elite Blog for any amount of time, you’ll know this is a personal finance and development blog and I absolutely endorse people building real wealth so that they will have Financial Freedom one day.  So, it’s imperative to read how I incurred this debt of $5000. 

 

Let’s just say that I needed $5000 to clear up another short term, personal loan I had with another institution.  Here’s where you should listen.  I got financing for $5000 to upgrade my share of personal real estate I owned that would improve myself and my wife’s lifestyle a bit. 

 

Very unorthodox of me to take on but I knew I had a plan to pay off.  I had the money outright to pay for this, but opted to use other people’s money just like Robert Kiyosaki (Rich Dad, Poor Dad) endorses in many of his best sellers.  Someone like Suze Orman would have been against my thinking, but I’m not a rational or normal debt paying person as seen by my original Financial Blueprint

 

 

My Unconventional Loan Study

In any case, I took on a privatized loan from a fractional real estate company with terms of 10 years to payoff, $5000 of Principal borrowed and a whopping 15% of interest.  Why did I take this on with such terrible terms?  For one, the payments would be very cheap as it’s spread out over 10 years and I secured the loan quickly.  Here’s how the breakdown of this original loan looked like: 

Loan #1

Monthly payment required to achieve payoff goal:
Number of payments between now and payoff:
Total interest cost between now and payoff:
*Calculated through free financial calculator on FinancialMentor.com  

 

 

You can see from the chart above that my payments were only around $88.00 a month, but would take me 99 payments to pay off and I would accrue a whopping extra of $3,743.64 of interest!  Ok, here’s where I got smart.  I know that universe loves speed (action and execution).  I took on the loan because I knew that I would be able to refinance quickly within a month and still secure what I was paying for in the first place (smart huh?) 

 

Now, I took my loan terms to my local Credit Union, where I have a good relationship with and told them I’d like a personal loan of $5000. See how this is shaping up?  I borrowed this money for a short term loan of 1 year and here is how my new refinanced loan schedule looked like:

 

Loan #2

Monthly payment required to achieve payoff goal:
Number of payments between now and payoff:
Total interest cost between now and payoff:
*Calculated through free financial calculator on FinancialMentor.com  

 

 From the above refinanced loan terms, you’ll see my new payments of around $424.00 a month, 12 months to payoff and only $95.30 of interest accrual.  Can you see how I would save the ridiculous amount of $3,648.34 of Interest with Loan #2 vs. Loan #1 !??  This is real, wealth building money in your pocket people that could make you rich when invested and grown correctly.

 

Ok, here comes the 1st nail in the coffin for this loan, the 1st knockout punch per say.  I could easily stick with the terms of loan #2 and comfortable pay off within a year.  If you remember though, we want to live extraordinary lives right?  So, here’s what I did:

The first payment of the loan came around due on the first part of October, 2011.  I paid the payment due of around $424.00 (Interest and some principal), then I applied a sucker punch to this loan of an additional $576 of payment straight to principal – POW!  Realize this is a $1000 payment because I could swing it.

 

 

Needless to say, my loan officer was impressed but even more importantly, here’s how my improved and wealth building loan schedule looks now if I continue on my one-two punch, loan attack of $1000 per payment with $576 towards principal or unscheduled payments:

 

My One-Two Punch of Dealing with Loan #2

Monthly payment required to achieve payoff goal:
Number of payments between now and payoff:
Total interest cost between now and payoff:
*Calculated through free financial calculator on FinancialMentor.com  
 

 

Can you now see how it would only take me 4 months to payoff this loan and only incur $36.51 of interest by the way?   Awesome!  This is just how you and I both need to live out of the status quo and if you think about it, I’ll save over $3700 plus dollars of interest while getting to leverage other people’s money.  Nice deal if you asked me.  For less than the cost of a steak dinner of interest, I’ll secure my original investment, take on a 4 month loan that I can handle and improve my lifestyle freedom with this investment.

I know what you might be asking right now, you just might be thinking how can I afford to make $1000 payments in the first place.  Simple, right now I live on only about 45% of income with expenses and normal lifestyle while still enjoying the benefits of investing the rest towards my own financial freedom.  If you need a boost in income, you really want to read my ‘Living off 70% – The 70% Rule’ to help add additional income, decrease expenses and help change your money habits.

 

 

I want to also point out of just how much I’m increasing by personal Debt Equity in this refinanced loan vs. how I’m actually paying it off.  Using one of Todd Tressider’s free Debt Equity Calculators, you can see that if I go with my one-two punch, debt busting schedule from above, here’s how my Debt Equity now looks if you’re interested.

 

 

Debt Equity Breakdown snap-shot

in-debt-4

 

 

 

 

 

Note in the above debt equity formula, it’s a bit off because I couldn’t enter the number of payments, but no matter.  If I keep on track, I’ll pay off the loan in 4 months instead of the 6 months and save around $51.08 of interest.  More importantly, I free up that money that I would pay to the loan to put towards an investment e.t.c.

 

The whole purpose of this post is to help change how you think about your debts if you’re still in debt and get creative ways of finally ridding yourself of it forever. 

 

7 Ways I Tackle Debts

  • The Psychology of why we get into Debt
  • A proper plan to reduce debt quickly
  • What it would mean to rid myself of debt – saving great amounts of interest for a wealth building payday – this is the reward.
  • Helping others rid themselves of debt, helps me in turn
  • Getting into the frame of mind of physically and mentally paying down the debt.  This comes down to the mechanics of doing vs. thinking.
  • Remove yourself emotionally from the burden of Debt
  • Rewarding myself and feeling the mental relief of eliminating the debt

Copy of Receipt – Payment below

 in-debt-3

 In case you can’t read my very bad scan of the loan receipt, it shows that I paid $1000 towards the normal payment and the balance representing an unscheduled payment.  Also, the balance of the loan with some interest calculated is $4,034.52.

 

As you can see, it really does come down to action and it’s as simple as that.  You can pay what your loan schedule or credit card company tells you to pay or decide to live like no one else and finally remove yourself of the debt.

 

I really want this to be the start of something big – something that can spur the movement of people becoming financially independent and break the cycle of incurring debt and have true Financial Freedom.  No one says it would be easy.  The easy way out is to just stay with the status quo, do as your told financially or otherwise and live a ho-hum life.  Who the heck really wants that when you break it down?

 

Pay it down Debt Balance

$5000

 $4,034

 

 

Hopefully, you enjoyed this  first case study of me vs. $5000 in Debt.   Will I make the goal of knocking off this debt in the time I want and save massive interest?  Stay tuned and never miss another blog post by joining the RSS Feed by email.   Make sure to pickup your FREE copy of my original Financial Blueprint to Wealth:  ‘Golden Nuggets – 25 Absolute Steps You Need for Financial Freedom that can help put you on the road to wealth in little time.

 Will you also pledge to knock out any debts plaguing you and work on your own Financial Freedom?  Let me know about it in the comments section.

One more thing before I go, know someone or others that this post could help?  Please share it socially with ‘Share the Wealth’ social media buttons below.

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Category: Case Studies

  • Hey Dwight,
    Makes sense to me. This article   has thought me to be CREATIVE if I really want to get out of debt
    It helped  me realised I can’t  do things the Traditional way  and expect to get anything but traditional results. thanks for this info

  • Anonymous

    No doubt Jackie,

    Creative means of financing and getting out of personal debt will only lead to a life more fulfilling and better lifestyle choices.  Thanks for sharing.

    ________________________________

  • Pingback: You May Be In Debt, But You Do Not Have To Stay In Debt - Great Article()

  • Kolai_99

    I’m on the illiterate side of financial things….this confused me. So you borrowed 2 loans of $5000 each ? is that correct ? If you only needed $5000, wouldntit be easier just to go to the Credit Union ? Obviously I’ve missed something but I’m not sure what.

  • Anonymous

    Hey. No worries, let me clarify this for you.  I borrowed $5000 originally at a high interest rate but very low payments just to secure the loan quickly.
    Then, I took that financial info. to my credit union and refinanced the original loan and paid it off through the credit union where my loan payments were higher but the interest was much lower.  So, effectively I only have one loan as the first one was discharged (paid off).  Hopefully, that answers your question.

    ________________________________

  • Jewatersports

    Much clearer — explained clearer. crystal clear now
    hope your  closing cost/ refinance fees weren’t too high

  • Dwight Anthony

    No closing costs involved at all.

  • Dimple Arora

    Very interesting! The way you have compared the loan-paying
    situation will help many of us to think twice before jumping for a loan. Mere
    shopping around and little bit of calculations can save us so much!

  • Anonymous

    You’re right about that one Sandy, look out for part 3 in this series that’s coming up soon.

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  • Nope, no closing costs on that one.

  • Pingback: Part 3: Watch Me Knock Out $5000 In Debt (Case Study) | Financially Elite Blog - Achieve Financial Freedom()

  • Ko

    hmmm I know this was posted some time ago but I keepcoming back to it and I can’t figure out why you’d borrow the money in the first place if you say at the start you had the money to outright pay for it.?? I’m obvioudly in the dark 🙁

  • dwightanthony

    Hey, no problem, no dumb questions here. The reason why I ended up getting the small loan was that I knew I could get it financed for very low interest rates. Not only that, while I was making payments on the loan, I was building more wealth at the same time giving me more leverage. Give my post, ‘ Build that Emergency Fund’ a read as it will give real life tips on how to manage your money, debts and still build your net worth.

    http://financiallyeliteblog.com/build-th-emergency-fund/
    Dwight Anthony