The Jam in a Nutshell:
Welcome to the October Money Jam session! In music, a jam session is an informal gathering of musicians playing together, and that’s the vibe we always go for here.
My name is Rebecca Eve Selkowe, and I’m on a mission to empower all women to be confident and in control of their money. I’m the author of Dominate Your Debt: A Work & Play Book and creator of the Dominate Your Debt ® Boot Camp and Rock Your Money ® private coaching programs. I created these jam sessions to give women structure and a safe space to talk about money and get support around whatever money issues they happen to be dealing with.
I consider it a blessing to be able to do this work and a true honor that you are here with me today.
Today’s topic is three things no one bothered to tell you about debt that are majorly affecting your ability to dominate it!
Thing One: How interest is actually calculated.
You probably know or have heard the term APR. What you don’t necessarily know is that this is a neat little shorthand that doesn’t tell the full story. When you carry a balance on an interest-bearing credit card, you are actually being charged interest daily. And it’s compounding, meaning that every day your interest is added to the debt and the next day the interest is computed on the interest.
How much interest your debt is costing you is key. You must know this number if you’re trying to pay off your debt. In the Dominate Your Debt ® Boot Camp, we find this number to the penny before we do anything related to your payment plan. Ignore this information and you will waste a ton of money. And let’s be real: if you’re trying to make a dent in your debt, and eventually pay it off, money is the one resource you really need.
Thing Two: How your credit card minimum payment is actually calculated and applied.
Your credit card company decides how to calculate your minimum payment, and it doesn’t have to follow any particular rules, other than to let you know. Which it did. In that 3-point font, dull gray booklet you threw in the recycle bin because everyone throws that sh*t in the recycle bin.
Here’s what you missed.
Most credit card companies set your minimum balance one of two ways:
- 3-5% of the total of all principal, fees and interest, or
- 1% of principal plus all fees and interest
What does this mean for you? Well, it could mean that when you make that minimum payment on your credit card, only one percent of that amount is paying off the principal – the rest is all fees and interest! So, for example, if you make a $30 payment on a $1,000 balance, it’s very possible that $20 is essentially being flushed down the credit card toilet!
Student loans, car loans, mortgages are calculated a little differently because they are amortized and paid in monthly installments. In the boot camp, we talk about how to work strategically with your minimum payments. We want to make sure you create a payoff plan that makes the most of your money – and doesn’t have you spinning your wheels!
Thing Three: How debt actually affects your credit score.
Your credit score is based on the information in your credit report. It is designed to give lenders a quick way to measure your ability to responsibly handle credit. That’s it. Neither your interest rates nor how much interest you pay are included in your credit report, so they don’t affect your score, either.
When you pay your balance in full at any time between the end of your statement cycle and the due date, you don’t pay interest, and you demonstrate that you are able to handle credit responsibly.
What if you aren’t (yet!) able to pay your balance in full? Carrying a balance on your credit cards doesn’t automatically lower your credit score. What matters is your credit utilization ratio. This means how high your balances are relative to the total amount of credit available to you.
Pump up the Jam
Having debt is like getting a dog. You need to recognize when he needs to go out, and train him to let you know. Otherwise he will poop and pee all over your house and make a big mess!
Debt is NOT a fact of life. It is a temporary, solvable problem. Don’t make it harder than it needs to be! The more you plan and work with your natural tendencies, the easier it will be for you. You’ve got this!
Oh, and if you’d like to make it even easier, check out and apply for the next Dominate Your Debt ® Boot Camp. We’d love to have you!