What is Your Debt Actually Costing You?

by Joe Plemon on April 4, 2011

You already know that your debt is costing you, but have you considered just how much?  And in what ways?  I have a hunch that you are being affected in ways you might not even realize.

So …  let’s explore: what is the real cost of debt?

Actual Dollar Cost

When you borrow money, you pay for the use of that money. The price you pay is called interest. A family which owes $10,000 on an 8% car loan, carries a $3,000 credit card balance at 12%, has $20,000 in student loans at 6% and $150,000 home mortgage, also at 6%, would pay out $947 in interest that month ($67 on the car, $30 on the credit card, $100 on the student loan and $750 on the home).

Let that sink in a minute. $947 interest…one month. Are you starting to understand why banks have big buildings?   If this family maintains the same debt level for 40 years, they will have paid $454,560 in interest payments. This is the actual dollar cost of their 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?  A 4% annual return would have turned this $947 into over $1.1 million dollars…an 8% return would create a nest egg of $3.3 million.  Would you agree that this is some expensive debt?

Marital Costs

As a financial counselor, I always ask my clients what their financial goals are.    “Getting out of debt” is nearly always the number one goal.   Although studies which link money problems to marital problems are sketchy, I believe we can safely say that couples which struggle with debt also struggle with their marriages.  Debt, for these couples, is very expensive.

Health Costs

Long term debt problems can cause chronic stress (see The 7 Ways Stress Effects Your Health), 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

Proverbs 22:7 says, “The rich rules over the poor and the borrower is the slave of the lender”. Get that “slavery” part? Being in debt is slavery because your debt controls the borrower. Debtors don’t have the freedom to pursue new career tracks because every decision must be based on, “How are we going to pay our debt?” Creativity is therefore stifled and the bumper sticker, “I owe, I owe, so off to work I go” is no longer funny.

What to do?

You might be swimming in debt, but you don’t have to stay there! If you are sick and tired of being sick and tired, decide today that you have had enough. Get angry and declare war on your debt. You are not alone. Millions have been exactly where you are today and have dug their way out of debt. Here are some practical steps:

  • Agree with your spouse. Turn the TV off and have a heart to heart talk. Discuss your goals for your marriage and your finances.  Be open and candid as you work toward agreement.  Being on the same page will give both of you hope, energy and gumption.
  • Read. This blog and lots of others will give you great ideas and encouragement. “How to” books such as “The Total Money Makeover” by Dave Ramsey will motivate you and give you a plan.
  • Form or join a support group. Consider signing up for the 13 week Financial Peace University course. You will be encouraged as you join others seeking a common goal.
  • Pray. God is the great liberator and he wants you to be free from the slavery of debt. The bible has over 1000 verses in it about how to deal with money. These verses never lose their relevance.

Readers: In what ways has debt affected you, your marriage, your energy level and your life?  What actions are you taking to get debt out of your life?  If you are already out of debt, how is your life different than it used to be?


{ 9 comments… read them below or add one }

Justin @ MoneyIsTheRoot April 5, 2011 at 10:08 am

Wow, that is crazy when you lay out the amount of interest paid in a month like that. People dont understand how it ALL costs, and probably focus too much just on credit cards etc.


joeplemon April 5, 2011 at 1:20 pm

Yes…it IS crazy. Hopefully, seeing those numbers will wake some people up.


Squirrelers April 7, 2011 at 2:13 pm

It’s staggering how people can set themselves back financially when they take on debt – particularly excess debt. However, that’s only part of the cost, and I agree with what you say about how it can impact life in general. Debt makes one a servant to the lender, zapping freedom. Additionally, there can be stress than can unfortunately impact marriage and health. Just avoid debt!


joeplemon April 7, 2011 at 2:35 pm

Your last sentence said it all. If people could set their minds to “No Debt”, they would avoid every cost I mentioned in this article.


Dr Dean April 11, 2011 at 9:00 am

Joe, love the way you totaled up the interest cost for a year and lifetime. That should hit home to folks.


joeplemon April 11, 2011 at 9:19 am

Dr Dean,
Yes, seeing those numbers can be a real eye-opener. Like you say, I am hoping it will hit home to some folks.


Jane @ best cc April 11, 2011 at 4:23 pm

You don’t have to be in a debt! So positive!
Talk to you spouse is a step #1. Be honest and open, listen and try to understand. The design will come out easily. Support and understanding will give you power to fight.


No Debts, No Regrets April 13, 2011 at 2:54 pm

Making the decision to get out of debt and then following through has been an absolute relief to me. And it takes more than just setting the goal. I found that treating the process more like a part-time job has given me better and faster results. I also created a Debt Buster Spreadsheet which can be downloaded for free from my blog. I am willing to help anybody who wants to use it, just post a comment on my site and I’ll answer any questions you may have about it.


fred February 21, 2013 at 2:03 pm

Your Positive Attitude towards reducing debt is awesome!! Your blog has helped me reduce my debt. Thanks for all your hard work.


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