The Real Cost of Debt

Your debt is costing you. No shocker there. But how much? And in what ways? My guess is that you are affected in ways you do not realize. So let us explore what is the real cost of debt?

Actual Dollar Cost
When you borrow money, you pay for using that money. The price you pay is called interest. A family has $ 10,000 on a car loan of 8%, carries a $ 3,000 balance by credit card at 12%, was $ 20,000 in student loans at 6% and $ 150,000 mortgage for housing, also at 6% , would pay out to $ 947 in interest that month ($ 67 on the car, the $ 30 by credit card, $ 100 on the student loan and $ 750 on the house).

Let that sink in a minute. $947 interest…one month. Are you starting to understand why banks have big buildings? All payment amounts above the $947 go to reduce principle, so as the principle is slowly paid down, the interest portion slowly decreases.

But because many people think only in terms of whether they can afford the monthly payments, they tend to take out more loans as they pay off the current ones. If this family maintains the same debt level for 40 years, they will have paid $454,560 in interest payments. This is the real cost of debt.

Lost Opportunity Cost
I define “lost opportunity cost” as the squandered possibilities of the money had it not been going toward interest payments. What if this family had invested this same $947 each month? Buying CD’s earning 4% would have turned this $947 into over $1.1 million dollars. Investments into mutual funds earning 8% return would create a nest egg of $3.3 million. So it is not a stretch to say that this debt is costing millions of dollars.

Marital Costs
When I ask couples their short term and long term goals, getting rid of debt easily tops the list. Because money issues are the number one cause of divorce in America, and because debt is a huge money issue, we can safely say that marriages are paying a high price for their debt.

Health Costs
Long term debt problems can cause chronic stress and chronic stress can cause depression, anxiety, heart conditions, diabetes, hair loss, excessive weight gain and loss of libido. Need I say more?

Creativity Costs
The Proverbs 22:7 says, “ordered the rich over the poor and the borrower is slave to the lender. Get that piece of “slavery”? Being in Debt is slavery because the debt controls the borrower. Debtors are not free to pursue new career paths because every decision must be based on it, “how are we going to pay our debt? Creativity is stifled and the adhesive bumper, “I owe, I owe so off to work I go” is no longer funny.

What to do?
You could swim in debt, but you should not stop there! If you’re sick and tired of being sick and tired, decide today that you’ve had enough. Get angry and declare war on your debt. You’re not alone. Millions have been exactly where you are today and have dug them out of debt. Click here if you want some practical steps (source article).

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