Credit Cards and Consumer Debt
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By jtallenmd
August 1, 2006

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I have been working the debt pay-down for about 20 months now and I have made significant progress, but I still have a long way to go. I think I am hitting the doldrums. I see that I have made progress, but don't see light at the end of the tunnel yet, so it is hard to stay motivated at digging out of debt.

One thing that has helped to keep me motivated is to look at how much money is going just to pay finance charges. I think about all the things I could do if that money were going to me instead of the bank.

Today, I did something that I hadn't done before. There has been a lot of discussion about total amount of debt and debt to income ratio, but I haven't seen any discussion of what percentage of income is going to pay interest. So, I wondered to myself, where would I be if a calculated monthly interest payments as a percentage of my income. Now, I calculated it two ways. I get paid monthly, but I also get three bonuses throughout the year (one in July and two in October) that make up a significant portion of my total annual income. First I calculated just based on my monthly income and then I calculated based on dividing my annual income evenly over 12 months. I did factor in mortgage interest and student loan interest.

The result floored me. I couldn't believe it. I am paying 14.8% of my monthly income just for having had the privilege of immediate gratification. That's just interest, folks. That does NOT include principal. Even when I factor in my annual bonuses, I am still paying more than 10.5% of my average monthly income towards interest.

Oh, the places I could go.... if only, I didn't have to pay back the bank.

I owe, I owe, so off to work I go.

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