Being in debt sucks.
It can make life extremely stressful and frustrating. It can prevent you from living the life you want to live, doing the things you want to do, and achieving your goals.
Debt can easily take over your life.
Signing a loan or buying something on credit takes only seconds to do, but could take you years to pay off. Especially if you’re only able to make the minimum payments.
With high-interest rates, each payment you make barely puts a dent into the principal amount that you owe. You are left stuck in a vicious cycle of payment after payment that seemingly makes no difference.
You just can’t get ahead.
If you are or ever have been in debt, you probably know all this already.
But do you know how much being in debt is costing you?
How Much Debt Do You Have Overall?
Hopefully, you have at least an idea of how much debt you have overall. If you don’t, you’ll need to figure that out first.
Your overall debt includes any money that you owe to someone else. For most people, it’s the balance on your credit cards, your mortgage, your student loans, your car loan, any personal loans and any bills that you are behind on.
Unfortunately, adding up all these numbers doesn’t give you the whole picture of how much being in debt will actually cost you.
I currently have about $62,000 in debt between my student loan, credit card, and line of credit.
But paying back this debt is going to cost me a hell of a lot more than $62,000. (Unless of course, someone wants to just go ahead and pay that all off for me? Pretty please?)
How Much Interest Are You Paying?
If you are in debt, you are almost definitely being charged interest. (Although there are exceptions, as interest-free loans do exist.)
For most people and for most debts, however, you have to pay for the “privilege” of using someone else’s money.
The interest rate will vary, depending on what type of debt it is and the conditions associated with it.
Credit cards, for example, usually have higher interest rates ranging from 11% – 20% (or more). My “low interest” credit card has a rate of 11.99% and they won’t let go any lower. I’ve asked. My student loan, however, has a rate of 5.2%.
And, of course, the higher your balance, the more interest you pay.
Your bank statements and financial paperwork related to your loans or credit accounts should include information on how much interest you are being charged.
If your bills or statements don’t list the interest charges separately, you might need to do a little math. But don’t fret. There are plenty of online calculators to help you figure it out. (Just search for loan repayment calculators.)
The exact amount will vary each month, depending on the payments you make or if you have a variable interest rate. But this will at least give you a good idea.
How Much Being in Debt is Costing Me:
My $62,000 in debt is made up of only 3 things – my student loan, a credit card, and a line of credit. (My husband also has a credit card, but since it’s not maxed out like mine, I’m excluding it from this post.)
On average, this is what I pay in interest each month on these debts:
- Credit Card – $110
- Line of Credit – $65
- Student Loan – $175
In total, it costs me $350 a month to be in debt.
That’s just under $12 a day.
Or $4,200 a year.
To put that into perspective, my total income for 2015 was only $11,300 when I was between jobs. (Which explains how I maxed out my credit in the first place.)
For 2016, although my total income was better, I still earned under $24,500. I got a bit of a break with the interest charges on my student loan, because I qualified for repayment assistance for the first part of the year. But I still paid a total of $3,150 in interest charges.
Meaning that last year, being in debt cost me almost 13% of my annual income. And that’s just the interest, not the actual debt payments I made on top of that.
How ridiculous is that?! No wonder I feel so broke!
What Good is Knowing How Much Being in Debt is Costing You?
If you played along, you should now know approximately how much being in debt is costing you each day, each month and each year.
But so what? What good is knowing how much being in debt costs you?
I could sit here for days daydreaming and/or whining about how I’d be debt free months (if not years) sooner if only I could use that $350 a month to pay down my debt, and not just pay the interest on it. But unfortunately, that won’t change anything.
But thinking about my debt in more tangible ways might.
Long before I knew about personal finance blogging, I knew how much overall debt I had. But I had no idea what to do with that information, other than occasionally freak out about it.
Because being $62,000 in debt doesn’t really mean anything to me. It’s just a big, somewhat abstract number that I wish were my salary, instead.
But $12 a day? That means something to me. That’s something I can easily wrap my head around, especially because it wasn’t that long ago that I made less than $12 an hour.
If nothing else, knowing that my debt costs me $12 a day is enough to make me stop and think twice every time I pull out my wallet.
And changing your mindset is one of the first steps towards getting out of debt.
Because how are you ever going to get out of debt, if you don’t know how much being in debt is costing you?
YOUR TURN: Do you know how much being in debt is costing you? Please share your number (if you’re comfortable doing so) in the comments below!
Amanda Kay, an Employment Specialist and founder of My Life, I Guess, strives to keep the "person" in personal finance by writing about money, mistakes, and making a living. She focuses on what it’s like being in debt, living paycheck to paycheck, and surviving unemployment while also offering advice and support for others in similar situations - including a FREE library of career & job search resources.
4 thoughts on “Do You Know How Much Being in Debt is Costing You?”
I was able to consolidate all my debts, which were made of student loans, credit cards and a line of credit. I had taken these at a times where interest rates were higher than now, in the 7-10% range and 20% for the credit card.
Consolidating was really helpful as I was only making one payment at an interest rate of 5%.
I fully paid off this loan last week! That’s when I realized how much that loan was weighing me down and limiting my options.
Consolidation might be a solution for you.
I hate debt. I don’t even like to carry a small cc balance month to month. The interest rate that it’s legal to charge on credit cards is ridiculous and that is a sobering thought when you think about how much it actually costs to be in debt. You go into debt because you don’t have the money, but then it ends up costing you more. Knowing is half the battle, so they say, and I know that you are doing the very best you can with what you have to work with.
I hear you on the cost of debt.
Every so often I look at my outstanding student loans and my emergency fund and feel the urge to use the fund to pay off the loan. It makes more sense to keep the loan since I was lucky to consolidate at historic lows, so even my simple dividend stock investments return more than the interest on the loans. But it would feel so nice to just pay it off and be done with it!
Nice article you are pro!!!!!!!!