The amount
of money Americans owe hit a staggering $12.84 trillion, increasing $552
billion from April to June, 2017. How much is a trillion? For some perspective,
let’s start with a million -- $1,000,000. It’s a nice round figure and if you
had this amount in the bank, you would be considered wealthy. Now add three
zeroes to this number and you have a billion – $1,000,000,000 or a thousand
million. In three months, Americans increased their debt $552 billion. Now take
a billion, add another three zeroes, and you have a trillion – $1,000,000,000,000
or a million multiplied by a million. Americans owe nearly $13 trillion dollars
to mortgages, credit cards, student loans, and auto loans.
So what’s the problem with this? Debt is money you borrow
and you have to pay interest because money isn’t free. If you buy a car and
don’t have enough in savings to pay cash, you would need to take out an auto
loan. The interest
rate on auto loans and your credit
score determines how much you pay in addition to the amount you borrow. For
example, if you borrow $10,000 with 9% sales tax to buy a used car (and I
recommend buying used because a new car is more expensive), and the interest
rate you borrow at is 4.26
percent for 60 months, you would be paying about $202 a month for 60
months. You’re going to end up dishing out $12,120 for the $10,000 you
borrowed.
Let’s say you borrow $30,000 to pay for your college
tuition. If you take out a Direct Subsidized Loan at 4.45% interest and pay it back in 10 years after you
graduate, your monthly payment would be $310.12. You will dole out $37,223 and
the loan will cost $7,223 in interest.
Now you can try to justify a car loan in that your vehicle
will take you to work or school. And your education will hopefully reward you
with a higher salary in your career. What about credit card debt? Assume you
have a monthly balance
of $8,211 on credit cards. If you are being charged 16.69% interest, and
you pay $120.00 a month, it will take you 214
months (or over 17 years) to pay off your credit cards. In that time
period, you would have paid back $25,680, more than three times the balance.
Today’s interest rates:
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