This Way To Debt

Why does it take So Long for Me to Pay off My Debt?

Debt is a part of our everyday lives. Are world goes on because of debt. Since the beginning of time, we have made a system, to have things that we couldn’t afford, and set up a debt payment to pay it back. Weather is was a horse or a house, we find a way to get it and pay for it on time.

If I were to buy a home, the bank would give me a loan to purchase that property, and issue me a mortgage. This word mortgage comes from two root words, “mort”, comes from the Latin word meaning dead or death, and “gage”, means a pledge to forfeit something of value if the debt is not paid. So this mortgage is literally a death pledge. If I don’t pay my mortgage, they will take my home, or something of value. If I pay my mortgage the pledge is dead also. Either way, through the payment or nonpayment of the mortgage, the pledge is a dead pledge.

Now homes are not as valuable as they once were. Back in times past you might be able to barter something else of value, like one of your children, or an animal, but today we are much more sophisticated.

The beginnings of a mortgage system have been found, as early as 1190. English common law included a law that would protect a creditor by giving him an interest in his debtor’s property. According to this law, the mortgage was a conditional sale. Although the creditor held title to the property, the debtor could, in the event the debt wasn’t paid, sell the property to recover his money.

Doesn’t sound like things have changed too much today!

We live under a free enterprise system called capitalism.  Capitalism is an economic system in which wealth and the means of producing wealth are privately owned and controlled, rather than state owned and controlled. The one downfall of capitalism that can bring the whole structure down is greed. We are seeing plenty of that right now in our economy, and many think that we are heading to a socialistic society, where the government controls and runs everything.

If I have a 30 year mortgage, for 200,000 dollars, at a 6% interest rate, your payments will be 1199.10 a month. Now, let’s examine how this exactly works.

Mortgages today are designed specifically to benefit the bank. They are set up so that all the interest that you pay the bank will be made in the front end of the loan. The loan is top heavy with interest, and that interest belongs to the bank, not you. This is no accident. The bank makes sure that they will make their interest off the loan, before you make any payments to the principle. And there is a lot of interest for the bank to take. There is a name for this interest. It’s called compound interest.

Your mortgage is a closed end loan. It is interest which is working for the bank and not you. When you closed on your home, you were given an amortization schedule. This schedule is a schedule of every one of your payments to the bank, from your first one to the last one. If it is a 30 year mortgage, it will be for 360 months, a fifteen year mortgage will be 180 months. It will show you the amount of your payment that goes to interest, and the amount that goes to principle for every month that you have this mortgage. This schedule cannot be altered or deviated from. You must make every payment, as scheduled, on the date it is scheduled for. Usually there will be a late charge added to those payments that are late.

But what if I came up short one month and could not pay the full payment. Could I ask the bank to let me pay just 1100 dollars this month? Well, I could ask them that, but they would say no. The full amount is due every month and they will take nothing less.

Just as your mortgage is an example of a closed end loan, your credit card is an example of an open end loan. If you were to go out and charge up 500.00 dollars on your credit card, but when that credit card bill was due, you paid the full 500 dollars, how much interest would you pay on that credit card? If you said, none, you are absolutely right. You would pay zero, because the interest that you pay on a credit card is simple interest. It is figured on the average daily balance that you carry on that card. No balance, no interest. You can make as many payments that you want on your card. You can move money in and out of the balance; there usually are no limits as to how many times you can do this.

Interest is a part of our everyday lives. It’s everywhere, and it is what makes our economic system move. Interest can work for you or it can work against you. Albert Einstein said, “Compound interest is the eighth wonder of the world. Those that understand it, earn it, and those that don’t, pay it.” The banks certainly understand it and have been using it since they first existed. They get you and me into a death pledge, (mortgage),  that many of us are unable to get out from under. Today, one in every ten homes is vacant because someone was unable to fulfill their pledge to the bank and lost their home.

Compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on. The act of declaring interest to be principal is called compounding (i.e., interest is compounded). A loan, for example, may have its interest compounded every month: in this case, a loan with $100 principal and 1% interest per month would have a balance of $101 at the end of the first month.

Another example of compounding interest is this; what would you rather have, one million dollars or a penny doubled every day for the next thirty one days? Take your time…. Grab your calculators…. Give up?

After thirty one days you would have, ten million, seven hundred thirty seven thousand, and four hundred eighteen dollars, and twenty four cents.

Now back to our 200,000 dollar mortgage. It will take you twenty one years before you make it to the half way point of your mortgage. Twenty one years of your hard earned money going to the bank. After twenty one years of payments, you will still owe the bank 100,000 dollars. Do you think the bank understands how compound interest works? They do and you pay them interest, lots of it. As a matter of fact, after thirty years of monthly payments to the bank of 1199.10, your death pledge, oh, I mean your mortgage; will have cost you 231,677 dollars. That’s why it will take you thirty years to pay that mortgage off. Your 200,000 dollar mortgage will have cost you 431,677 dollars by the time it is all over. You will have bought one home, but you paid the bank for two. That just doesn’t sound right to me.

Our economy is changing. The more we understand how debt and interest work, the better we will be able to secure our financial situation, and learn to live debt free. Yes this is a fact that thousands of Americans are learning and living debt free, through United First Financial.  How about you? Continue to follow this blog and we will discuss ways to achieve this goal. The good debt that you should have, and getting rid of the bad debt and the interest that goes along with it. Instead of paying interest, let’s start using interest to our advantage and our benefit.

Financial institutions want to keep you and me in debt. They don’t want us to learn how money really works. They don’t want you to know how compound interest works, because the longer they can keep all of us in the dark about money, the more of yours they get to keep.

As you can see, interest is a very much needed element in our economy today. We pay it, and we earn it but it is what keeps our economy working. As consumers, or entrepreneurs, we all need to learn every aspect of what interest is, and how it works. It can be the defining line on whether we succeed or fail.

© Submit to Any - jjtcomputing.co.uk

Tags: bank, Capitalism, Debt, economy, home, interest rate, mortgage

What Can We Learn From Grandma and Grandpa To Help Us Today?

Ever wonder why all of the old sayings that Grandma and Grandpa repeated over and over
were about money? I think they were trying to teach us something.
• A penny saved is a penny earned.
• An ounce of prevention is worth a pound of cure.
• Waste not, want not.
• Mind the pennies and the dollars will take care of themselves.
• Use it up, wear it out, make it do, or do without.
• One man’s trash is another man’s treasure.
They lived in a different world with few conveniences, but they worked hard to pay for
things and stay out of debt. Why?
In their day, money was not stable. The stock market crashed. Banks were closing their
doors and leaving people with nothing. The most important thing to them was owning things
free and clear. They would rather work and save to be able to buy something outright than be
in someone else’s debt. And, that’s exactly what they did. They would save even when there
was zero interest.
They’d stuff money in their mattress, bury it in the yard at night, and hide it inside the
walls of their houses. Then, when they had enough they’d go and buy that car or horse or
tractor they needed. If they needed a home, they’d build it. If they needed food, they’d grow
it. If they wanted anything, they made sure they had enough money to pay for it. They’d find
things that other people had thrown out and they’d repair them for their own use.
Let’s compare that with today’s world. How would we change those sayings to fit this day and
age?

How Grandma’s Advice Would Read Today
• A penny saved is spent the next month.
• An pound of cure is more convenient and I don’t have time for prevention.
• Waste all, want all.
• Ignore the pennies and pretend there are dollars in the bank.
• Use it once, throw it out, get it new, and always pout.
• One man’s trash is another man’s trash.
In times past, whenever the younger generation ignored the advice of the older generation, it
usually ended up in a sad mess, and the younger generation was left wishing they had
listened. We have a lot to learn from those who came before us. Why not start with their
views on money and admit that they had it figured out. They knew what they were talking
about.
To start with, we need to spend less than we earn. Whether we have a large or a small
income, the amount of money we spend each month should be less than that. As long as we
spend less than we earn, we will always be wealthy. If we spend more than we earn, we
will always be poor.
In 1920, very few homes were mortgaged. Now, very few homes are owned free and clear.
Most homes have a mortgage these days. In fact, it’s just assumed when you buy a home
that it will be financed. Until recently, there were zero down loans. We didn’t even save for a
down payment. Now the mortgages aren’t just for 10 or 15 years, they are for 30, 40, and 50
years. There are mortgages that people wouldn’t ever be able to pay off in a lifetime.
Years ago–they would have been unheard of.
People used to make their own soap, bread, clothes, and furnishings. Now, we pay other
people to do all that. It is very rare to find anyone making anything from scratch–even meals.
Even when we cannot afford to, we pay a high price for conveniences. Nowadays, we are
hard pressed to find the makings of these things. Fabric stores have gone out of business all
over. It’s hard to find the ingredients for soap and woodworking tools are not as easy to find
as they once were.
Even though it’s hard to do, we could probably save a little money by doing more
things ourselves and sacrificing a few conveniences. Not that we have to go back to the
olden days and make our own soap, but having a mindset to simplify our lives and do more
for ourselves can add up to quite a bit of savings. For instance, do we really need 500
channels that we can’t find anything to watch on, or can we live with the basic plan?
And speaking of TV, children used to play outside and use their imaginations to invent their
own games. Now, they sit in front of television sets and play electronic games. They have
their own cell phones before they even begin middle school. Instead of passing notes in
school, they are texting each other. Our world has become very high speed, fast moving, and
gadget filled. Now, many of those gadgets are nice, but if we can’t afford them, they
aren’t making our lives any easier because we have to work harder and longer to pay
the bills each month.
So, the things our grandparents said were actually good advice. We can learn a lot from
them. We can prepare for tough times by saving money. We can put away a little at a time.
If we don’t need something, we don’t have to buy it. And, we could save money by making
more things for ourselves and only buying what we need. We could stay home and eat in
more than we go out. We could learn to do more for ourselves, like fixing our cars, cooking
home made meals, and learning new skills. We can also barter for things we need and trade
for things we have or skills we know.
We can also put away food, clothing, money, and supplies for times when we may not have
enough. We can repair things when they break instead of throwing them out. We can also
look for higher quality items at thrift stores and garage sales rather than buying overpriced
junk just because it’s new.

Ways Grandma and Grandpa’s Advice Can Help:
• Save Money
• Only Buy What We Need
• Stay Home and Eat In
• Do More For Ourselves
• Barter Goods and Services
• Grow a Garden
• Learn To Do Without
• Do Our Own Repairs and Work
• Can Our Own Food
• Sew Our Own Clothes or Repair When They Get Worn
• Save Clothes, Food, Money and Supplies for a Rainy Day
• Shop Thrift Stores and Garage Sales
• Repair Things When They Break Instead of Throwing Out
The next book will cover the emotional factors that keep people from being successful
when they try to follow this advice. We will talk about ways to pay off debt and get closer
to being debt free with the ultimate plan for debt reduction, using common banking tools and
computer programs available right now.
The first step is to get our budgets and our spending in control. Then, we can work on the
debt. By lowering our spending, it is like getting a raise. We have more income that we can
use. This gives us power to get rid of debt in an extremely quick manner, when the tools
discussed in these books are utilized in the ultimate strategy, which will be revealed later.

© Submit to Any - jjtcomputing.co.uk

Tags: bank, Debt, earn, grandma, money, penny, poor

Debt! What About It?

DEBT! DEBT! DEBT! DEBT! DEBT! DEBT! DEBT! DEBT! DEBT! DEBT! DEBT!

Getting tired of that word yet? It’s just Debt! What about it?

That is a word that we are hearing a lot of today. The federal debt, state debt, bank debt, seems like everybody is in debt.

There are some people out there who aren’t in debt. They are out there, but they are far and few between. There are actually some people who don’t have a mortgage or a mortgage payment. They are probably your parents, grand parents, or aunt or uncle. Those are the people who learned, long ago, that they would bought a house, raise their kids, and live in it for the rest of their lives.

Not so today. The average person lives in their home for about five to seven years, and either moves to another home or refinances their current mortgage and gets locked into paying the bank a lot more interest  for another, long thirty years.

DEBT! Did you know the the last two years the national average of money that people are putting into their savings account is……ZERO! That’s right… I said zero. People are living paycheck to paycheck.  Nothing is going into our savings account. As a matter of fact, many people don’t even have a savings account.

But you know what is scary? People think this is OK. They think this is the norm. This is what we do. Buy things with money you don’t have so you can impress people that you don’t even like.

Do you know that there will be more people filing for bankruptcy this year then there will be people graduating from college? Now that is sad. That is real sad, but that is the state of our financial mode of thinking.

Everybody attaches emotion to their money. You want to get someones’ feathers ruffled, just start talking to them about money. Especially their money. The saying is, “don’t talk to people about politics and religion.” Well, you can toss money in there now also.

Now, I don’t mean to draw any barriers, but there is a definite line and perimeters to the way people think about money, and how they use it. Social class, religion, location, ethnicity, race, and gender. All these groups have a different emotional side to money and if we look at these emotions, I think that they will guide us to the answers of why and how we get into debt.

That is what this blog is about. I want to invite you on this journey with me to find the answers to the questions about our debt and how we can find the road to financial freedom… Can we?… Can we really learn to live debt free? Can we really get out of this mess and back on the road to prosperity? I want to find the answers to these questions and more, and I will need your help.

I too have struggled with debt most of my life. Living beyond my means. Wanting everything and wanting it now. Not worrying about the future or who would pay the price. Maybe, I am describing some of you.

Come with me on this journey. I need your input. I need your experiences and the way you coped with your debt. The ways that worked for you and the ones that didn’t.

I am co authoring a book, with six others, my business associates, and I would very much like to hear from you. Leave your comments, ask your questions, and give your advice.

I look forward to hearing from you all, and I can’t wait to travel this road with you.

© Submit to Any - jjtcomputing.co.uk

Tags: bank, bankruptcy, Debt, house, money, mortgage, prosperity