simple finances, automatic results

Math-Mechanics

The following is how we at Xclr8 view the universe when it comes to finances and related subjects.  This is also a closer examination of how our app works under the hood. 

Conquering Debt from a phone

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Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. 
—Albert Einstein. 

When it comes to money, the biggest problem most people have (besides not having enough of it) is ignorance, which is a shame because the basics are actually pretty simple. Take “compound interest,” for example. All it means is interest generated on top of interest-already earned or paid—depending on whether you’re the borrower or lender.

 

Example: Let’s say you put $100 in the bank at 10 percent interest. Next year, your $100 will have made you $10 in interest, so you’ll have $110 total. Then, the following year, your money will earn another 10 percent on your original $100, plus, you’ll also earn 10 percent on the $10 interest you just earned. Earning interest on interest: That’s what we mean by “compound interest.”

 

First year: $100 + 10% of $100 = $110

You’ve made $10 interest on your $100 deposit.

Second year: $100 + 10% of $110 = $121

You’ve made another $10 interest on your original $100 plus $1 interest on the $10 you already made in interest.

 

In other words, you don’t just make 10% on your original $100. You also make 10% on all the interest that accumulates in your account. Unfortunately, when you borrow, in most cases you’re paying compound interest for as long as you still owe money. Worse, it’s all set up so that you’ll probably never think about it. When you borrow money from a lender for a home mortgage or an auto loan, they give you a payback schedule with a fixed monthly payment for an agreed number of months. Here’s what they don’t tell you: In most cases, you can pay extra to get out of debt faster and minimize the amount of compound interest you have to pay. If you owe money to lenders—for your home mortgage, car payments, credit cards, and so on—you’re paying a lot of compound interest. The trick to keeping more of your money is reducing that unnecessary outflow.

Here’s how much personal debt American's have

Americans owe a total of $11.85 trillion ($11,850,000,000,000):

 

  • Average credit card debt: $16,140

  • Average mortgage debt: $155,361

  • Average student loan debt: $31,946

How do you compare to these averages?

Live well and get out of debt

Before we go any further, let’s be clear, we’re not promoting the kind of drastic measures you’ll hear from David Ramsey or Suze Orman: get rid of your belongings, cut up your credit cards, and be miserable just so you can get out from under your financial burdens. Far from it.

 

We’re saying that you can grow your net worth by eliminating excess interest payments, and it’s not rocket science, either. We’ve taken the same web technology that allows you to make automatic payments for your home mortgage and auto loans and set up a system that automatically makes extra payments on your loans when you have extra funds available.

 

Our system works for any employed person who has manageable debt and enough disposable income to eat out at a restaurant or enjoy a date night on a regular basis.

Let’s look at another example

Let’s say you took out a $10,000 personal loan and you’ve agreed to pay 5.9% annual percentage rate (APR) over five years. The total interest you’ll pay over the course of the loan is $1,571, with a monthly payment of $192.86. Out of that monthly payment, $42 comes from “compounded daily interest.” That’s more than 20 percent of your monthly payment.

Let's look at another approach to paying off this loan. We like to call it the “extra lunch and latte approach.” If you’re an average working person, you probably spend $20 per day on lunch, coffee drinks, and whatnot. If you were to take that $20 and place it every day toward your $10,000 debt daily—while still making your regular monthly payment—you’ll have paid off your debt in 18 months instead of 60. Furthermore, your interest paid will  be just $451 instead of $1,571. That’s more than $1,000 savings on interest. The more extra income you can free up, the faster your debt gets paid.

Sounds inconvenient, right?

You’re probably thinking, great, so I have to mess around with making $20 payments every day? Why not just make an extra payment once a month, or on the 1st and 15th when I get paid? Well, the psychology of marketing tells us that you probably won’t do it. Plus, then you’re still paying excess interest on all those other days. That’s where Changejar comes in. Changejar simplifies your finances by making payments automatically, every day.

 

Wait a minute, you’re probably thinking, this actually sounds a lot like Dave Ramsey and Suze Orman. You’re saying I have to give up lunch? Well, actually, no. That’s just an example. The point is, most working people who aren’t living on the edge have some level of discretionary income (translation: extra money). The problem with making the most of those extra dimes and dollars is keeping track of it and making it work for you.

Pay less interest, make more money

Again, that’s where ChangeJar comes in. You request how much you need, and it calculates the amount you have left over, then it uses that amount to pay down your debts every day. Changejar makes extra payments on your highest interest rate debts first. And after you pay off all your debts, you can even use Changejar to funnel your money into higher return investments.

Here’s how it works

When you start using Changejar, we ask you several questions:

  • What is your net income?

  • What are your fixed expenses (mortgage, car loan, tuition, etc.)?

  • What is your personal budget?

Then Changejar categorizes your debts and figures out which ones to pay off first to minimize your interest payments. You don’t have to lift a finger once you setup your profile. Changejar moves your funds directly through Google play or Apple pay and applies them to the first debt on your list. When that one is paid off, Changejar automatically moves to the next one. Plus, you can update the app anytime.

Sound too good to be true? It isn’t. We’ve used the system ourselves, and it works. Below is a test based on our own personal finances. We never noticed a difference in our lifestyle, or our finances. ChangeJar manages the transactions.

So there you have it. You’re going to love being debt free!

Thank you for your support and consideration.
Sincerely,

Kris Kitchens

Mike Licciardello

David Broers