The Truth About Debt

Facts about you and your money

• The average American will SPEND $1,860,000 on goods and services in his or her lifetime. - American Demographics
• A baby-boomer who makes $50,000 a year today will need ONE MILLION DOLLARS in savings to replace that income by the time he or she retires. - USA Today
• The average cost of owning and operating a car over the course of a person's working life is estimated to be more than $200,000 - American Institute for Economic Research
• If the above costs of owning a car were cut in half (in other words each car was kept twice as long before replacement), the savings invested at 10% over the same person's working life would build up to an additional $1,317,495 in retirement income!
• An extra payment per month of $100 applied to a 9%, 30-year fixed $100,000 mortgage will save $75,394 in interest.
• Adding just 15% to your monthly mortgage payment can cut 10 to 15 years off the average mortgage.
• More than HALF of all the money you make in your lifetime will go towards taxes, debt payments, and fees.
• Average homeowners stay in their homes for 7.1 years [National Association of Realtors®]. With an average 8% mortgage, they will sell their homes still owing over 90% of the principal. If they continue this trend, they will NEVER pay off a home in their lifetimes!
• The average 45 to 54 year old has just $2,600 in the bank - Capital Research Associates
• The average savings of a retired couple is only $7,000.
• "On average, Americans can expect to receive just 37% of the annual retirement income they will need to live comfortably" - Oppenheimer Funds Dist., Inc.
• 85% of Americans have a true net worth of less than $250. - Social Security Administration
• Every day, over 2,200 Americans lose their jobs.
• Parents can expect to pay over $150,000 to raise a child to age 18; and if the child goes to college, add another $70,000 to $160,000

Unprecedented numbers of Americans are in debt for record amounts

• 50 million credit cards are issued annually
• 70% of credit card holders carry a balance, which averages over $3,000
• Payments on debt now account for 92% of family disposable income
• total consumer debt is over 5 trillion dollars. That's about the same as the government's "national" debt everyone keeps talking about
• Personal bankruptcies are at an all-time high of about a million a year.
   

Banks, finance, and credit card companies have encouraged indebtedness

• Credit card companies are marketing to college students, so the borrowing habit begins in the earliest stages of adulthood
• Credit cards can now be used to pay for essentials such as groceries and rent
• Credit card companies offer low initial interest rates to entice borrowers to transfer balances from other cards. However, the rates then increase considerably, usually after only six months.
• Many companies, like GE Capital Services, are now charging penalty fees to customers who do not carry a balance on their credit card
• Credit card companies normally require minimum payments of only 3% of the outstanding balance. But that means the typical $3,900 balance, at 18% interest, would take nearly 42 years to pay off, and those monthly payments would total $14,530.44. Capital One advertises they'll lower your minimum payment from 3% to 2% for a fee. What they don't tell you is that paying only 2% of your outstanding balance each month could make the bill last longer than you do.
• People commonly borrow against their home equity. United Jersey Bank advertises that you can make minimum payments, only on interest, for up to ten years. Imagine, ten years could pass, you could pay thousands of dollars, and still have made NO progress on reducing your loan.
• Banc One is planning to test Visa and MasterCard accounts that will allow you to borrow up to 40% of your 401K plan before retirement. Nothing like throwing away your future for a little immediate gratification.
   

Did you know?

• Every dollar you pay above the minimum monthly payment on a debt earns you a gain equivalent to the interest rate the debt charges. In other words, if you pay and extra $100 towards the balance of a credit card that charges 15% interest, you're getting the wealth building effect of earning 15% annually on that $100. That's way better than most investments average over time. So the more you prepay against debt balances (without adding to them at the same time) the more you earn in effective interest.
• Prepaying your mortgage balance earns you more than you could possibly lose, in terms of the mortgage interest tax deduction. Let's say you're in the 28% tax bracket. That means the government gives you a 28-cent tax break for every dollar you spend on mortgage interest. But that means you're LOSING 72 cents out of each of those dollars. If anyone tells you that paying a dollar to get back 28 cents is a good investment, suggest they recheck their math. 
   

What can you do?

• Begin eliminating all your debts with the Debt-FREE & Prosperous Living® system.
• Never fall into the habit of making only minimum payments. Follow the accelerated debt payoff system taught in the Debt-FREE & Prosperous Living® Basic Course.
• Avoid the trap of thinking in monthly payments. consider the total cost of a purchase, not just whether you can fit the payment into your monthly budget. Always think about how much the monthly payment could build up to over a couple decades if it was going into your retirement account instead of the credit company's profit account.