The Cold Hard Truth About Living in Debt

by David Bakke

living in debtFirst of all, I must say that I got this idea from another blog post that I read on another personal finance website.  Trust me, I am so not into “ripping off” content, but I did get this original idea from someone else.  The title of that article was something like “The Hidden Costs of Living in Debt”.

Well, what struck me right off the bat was –what’s hidden about it?  To me (and I remember those days well), there was NOTHING hidden about the costs of living in debt.  I got the costs stuck right in my face every single month with every single credit card bill that came in the mail.  Right in that lovely section called “Finances Charges”.  And, if I was having a particularly bad month, there would usually be another nice little amount in the “Late Fees” section.

I will say this.  If you are living in debt, you may be living in denial regarding these costs, but again, there is nothing hidden about them.  They are right there.

Of course, I doubt many of you would get out the calculator(like I am about to do) to figure out exactly how bad you are screwing yourself by living in debt, but make no bones about it-living in debt is very expensive.

Let’s use a few simple examples.  OK, you live in debt.  Meaning, basically, that you carry balances on one or more (or all) credit cards and you don’t pay the balances off every month.  Let’s just keep the discussion to credit card debt.

So, you decide to buy an item that costs $100.  How about a Blue-ray DVD player for example.  Maybe you shopped around for a good price, maybe you didn’t (obviously, you should have).  Let’s say for this example that you did your very best to get the best price you could, and you got a great deal on this one because it was a quality brand and it was $20 less expensive than anything else you could find.  You’d probably be feeling pretty proud of yourself right now on your great purchase, right?

WRONG!  You shouldn’t be.  Because guess what?  You did not just spend $100 on that item.  Let’s say you put it on a card that charges 18% interest.  And again, you carry a balance on this card.  Well, you didn’t just get that item for $100.  You got it for $118.  And that’s only if you pay that balance down by the end of the year.  So, actually you could be paying way more than even the $100 or the $118.

Another quick example.  I recently bought a flat screen TV at one of the big box retailers.  I financed it, but not because I had to.  I am just investing this money until I have to pay it to them.  Anyway, the TV cost me $640.  I just got a bill for it the other day, and the look of these bills has changed with the new credit card laws passing.  They actually make these extra costs a little more visible to you.  Let me quote a few things from this statement.  And remember, this was on a purchase of $640. 

If I pay only the minimum payment on this account (which is $22), it will take 6 years to pay off the television and I will actually spend $1235 on it.

If I pay $26 per month, it will take me three years to pay off the television and I will actually spend $930.

The TV is a 37-inch LCD.  Do you see yourself spending $1200 on a 37″ TV??  How about over $900???

It is this eye-opening type stuff that caused me personally to realize the high costs of living in debt and also to realize that I’d better do something about it if I ever want to have any level of financial comfort in my life.

The specifics for getting yourself out of debt can be found all over this blog.  Suffice it to say, do what you have to do to get yourself out of debt, but life down there (in debt) is not cheap.  Not cheap at all!

Comments , feedback, and suggestions all greatly appreciated.

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