### How Much is Your Debt Costing You?

If you don’t know, you’re a dumb bunny!

Over and over I meet people who simply look at whether or not they can afford their monthly payment when looking at their debt. It’s as if they believe they’ll never actually have to pay off their balance. Since they don’t sit and figure out how long it will take to pay them off something they’re buying, and how much it’ll cost over the long run, they can delude themselves into believing they can buy whatever they want, whenever they want.

Spending \$2,000 on a big-screen TV doesn't seem like a huge deal when your interest rate is 18% and your minimum payment is about \$40 a month. Anyone can work \$40 a month into the budget, right? Let’s take the delusion to the next stage.

Look hard at your payment and you’ll see that only about \$10 goes toward your balance. Yup. Three quarters of your payment pays interest. Here’s the math in the simplest form possible:

Paying only the minimum amount each month will keep you on the credit hook for over 30 years. Thirty years! OMG. And you’ll end up paying over \$5,000 in interest. So that \$2,000 TV really cost you \$7,000.
You need to understand what your credit is really costing you. Find an online calculator and see how much it will actually cost you before you decide to pay for anything with credit.

If you’re trying to get out of debt, use the calculators to figure out how much you should be paying off every month to be oout of debt in three years or less. The faster you pay off the debt, the better. But if you go over 3 years, you’ll start suffering from “debt fatigue” and may find you never get out of the hole.

Here are some debt calculators you may find useful:

www.debtsteps.com/credit-card-payoff-calculator.html
Just because it says credit card doesn’t mean you can’t use this calculator for just about anything. Ignore the minimum payment stuff and just put in your payment amount. Remember, you want to be paid off in less than 3 years.

tools.canlearn.ca/cslgs-scpse/cln-cln/40/crp-lrc/af.nlindex-eng.do
This site will let you compare three options and handle fixed or floating interest rates.

www.creditsolutions.ca/content/view/40/82/
This one is handy because it lets you say how quickly you want to pay off the debt and then calculates what your minimum payment would have to be to achieve your goal.

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