Running off the tails of my last post about credit cards and minimum payments I wanted to follow up with some thoughts on the ultimate cost of debt.

Here are a couple of examples about how expensive debt can be.

Let’s compare Person A and Person B. Person A has accumulated $10k in credit card debt while Person B has saved $10k in cash. Person A is going to spend the next 5 years making payments on their credit card while Person B is going to take their $10k and put it in a simple savings account.

Person A’s initial minimum payment is $250 per month so lets assume that they can continue to make that payment until it’s paid off. (Minimum payments decrease as the balance gets lower which is why it takes so long to pay off credit cards).

Person A pays $250 per month and at the end of 58 months or almost 5 years their debt will be 0. They will have paid $4,385.41 in interest meaning Person A will have paid $14,385.41 over the last 5 years to be able to pay off their debt.

Person B puts their $10k into a saving account and puts their $250/month in with their savings. At the end of 5 years Person B now has $26,461.49 (1.5% interest rate).

The difference is astounding and applies to any amount of debt you can relate to. Think long and hard about taking on any debt you don’t have to. The numbers don’t lie, you will pay.