Basics of Debt
Most people have some type of debt. Some forms of debt are a mortgage, a student loan, an auto loan and credit cards. Debt gives you access to money you do not currently have. You will not only have to return that money, but also pay any interest or fees attached to borrowing that money. Debt is not bad as long as you manage it to certain levels and are working to pay it off. When the debt exceeds those limits, is a burden to you, or endangers your financial health, it is time to eliminate that debt.
Most of us can’t pay cash for a home, college education or automobile, so we will incur some debt. Understanding how this debt affects you is the first step into managing your debt. Here are some statistics about debt:
- Average credit card debt per household with credit card debt: $15,799*
- Average consumer credit card interest rate: 16.75%**
- Years to pay off only paying minimum payment: 15.8 years
If you were to pay a minimum of 4% of the average balance it will take 15.8 years to pay it off. That means that when my 4 year old moves out of the house I will still be paying that debt. That seems like a very long time. It will also cost you $8,394 in interest. That means that by borrowing $15,799 I will pay $24,193. That means it cost me 53% of my original credit card balance. That seems like a huge waste of money.
Remember to manage your debt and when the time comes, eliminate it.
- *According to Federal Reserve’s July 2011 report on consumer credit.
- **According to www.indexcreditcards.com as of November 30, 2011
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