True Cost of Debt

Having debt and being in debt is the current norm in America nowadays, and has been for quite some time. To speak nothing of the U.S. government’s trillions in deficit, American individuals in debt owe over $132,000 on average. Here are just a few illustrations of the costs this kind of financial burden brings to you and will hopefully inspire you with a new urgency to go out and pay off any debts!

 

Being in Debt Makes You Sick

Debt is is making you sick. That’s right. Have you ever been stressed out about money? With 75% of doctor’s visits due to stress-related illnesses, we could all use a little less stress in the money department. A 2015 study by the American Psychological Association found that money was the leading cause of stress in participants. Stress has many adverse effects on the body and can lead to serious medical conditions like: high blood pressure, heart disease, obesity, and diabetes. Stress can also be factor in less serious ailments, such as headaches, muscle tension, vitamin deficiencies, and sleep loss. By eliminating debt, and thereby the huge financial obligations you have to the bank, you can protect yourself from this source of stress, making your life healthier and happier.

 

Banks are Getting Loads of Your Money

The biggest reason to pay debts off as soon as possible, is that the banks are getting so much of your income! And it’s costing you tens, even hundreds, of thousands of dollars. An article from earlier this year on The Motley Fool about the size of the average American’s mortgage reported data from the Mortgage Bankers Association on mortgage applications from January 2017. These numbers suggest that the average mortgage that month was $309,200, and the average interest rate that month was at 4.1% on 30 year loans, making monthly payment at $1,494. Let’s break this down and see what the real costs are:

 

$1,494 per month for 30 years= $537,840 total paid to creditor

$537,840 minus the original cost of home ($309,200)=$228,640 in total interest payments

Breaking this down further:

$228,640 divided by 30 years=$7,621in interest payments each year, and $635 in interest payments each month.

At these rates, the total interest is equal to 73.95% of the principal/original home value. Who in their right mind would purchase a home overpriced by over 73%? But we Americans are choosing this reality of financial bondage year after year, over and over again.  

Now, is it just me, or could some of you also use an extra $635 a month in your pocket?

 

Borrowing Keeps You From Financial Goals

Signing for a loan or credit card is signing away your future income, and future you will likely not be very thankful.This takes away money you don’t even have yet, and prevents you from doing anything with that money in the future (like take a sweet vacation each year, or retire early…) Without making interest payments to a lender you can increase your net income, effectively making more money even without a raise or higher paying job. Owing money prevents many of us from planning for the future, and it’s not something we like to talk about.          

Some people take a head in the sand, avoidance strategy, they don’t like their financial landscape, so they simply avoid it; others make a more rational, mathematical decision of not seeing any extra money to put aside for retirement or future use. Neither of these strategies will help in the short or long run.

 

No Freedom to Choose

Finally, with financial burdens like these, we’re not the ones who truly decide where our money goes. We become slaves to our jobs and only get to spend a fraction of our income on the things we want and need. Being in debt prevents us from buying a new car when our’s makes funny noises, taking a family vacation when the kids are out of school, helping out a friend in need, or even creating savings to secure our own futures.

Avoiding interest payments, spending less than we earn, and putting away money for emergency funds and retirement are all means within our reach that will go a long way to increase our net worth, secure our peace of mind, and, ultimately, ensure our financial futures.

 

Sick and tired of paying interest? Click here to find out how much you can save…

 

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