What Does My Debt Cost Me?

by Miranda Jackson

Most people are surprised at the cost of their debt. How much is your debt costing you? And what would you do if you had that money available to you?

Have you ever asked yourself the question, “What does my debt cost me?” Borrowing money does cost you. You may be paying all your bills on time and have a good credit score. But, don’t kid yourself; you pay a price for being in debt.

One source puts average consumer debt at the end of 2022 at these levels:

• Average credit card debt: $5,221
• Average mortgage debt: $220,380
• Average student loan debt: $39,487
• Personal Loan: $11,131
• Auto loan: $20,987

Source: Bankrate.com

The Current Cost of Debt

How much do those loans cost us? We went to industry sources to get some typical rates.

• mortgage using a 30 year fixed is 5.75%.
• low interest cards 15.74%
• new direct student loans 4.99%

If we apply those interest rates to the average balances, we get:

• Credit card annual interest: $822
• Mortgage annual interest: $12,672
• Student Loan annual interest: $1,970
• Total: $15,464

Don’t worry about how accurate the debt totals or interest rates are. That’s not important. We’re just illustrating how much being in debt can cost you.

You may owe more or less. You’ll need to do your own calculation. You’ll probably want to add in any auto, boat, or home equity loans.

Calculate the Cost of Your Own Debt

To calculate your own cost of debt, you’ll need current statements from your accounts. There should be a line telling you how much interest accrued during the statement period or what your balance and interest rate is. (Multiplying the amount owed by the interest rate tells you the annual amount of interest. i.e. a balance of $1,000 times a rate of 12% = $120)

You’ll probably need to convert some interest costs, so they’re all either monthly or annual.

Let’s take a look at our test family. The cost of their debt is $15,464 per year or $1,289 per month.

Most people are surprised at how much their debt is costing them, especially if they have more than one account. How much is your debt costing you? And what would you do with it if that money were available to you each month?

You probably have some good ideas. I’d be surprised if you didn’t. So what’s your cost of debt? And what are you willing to do about it?

Related:

• Debt Repayment Strategies: The Snowball vs. the Avalanche
• 6 Legit Ways to Pay Off Debt Quickly
• Be Debt-Free This Year
• Do You Have a Relationship With Debt?

Reviewed April 2023