Let's Do The Numbers!

If you’re having a hard time seeing the value of getting out of debt; if the numbers seem abstract still, let me try to clarify it with this post.    In the post, Why Be Debt Free?, I detailed the debt of the average American (the average American has a home with a mortgage balance of $240,000, a car with a loan balance of $30,700 (two thirds of American households have 2 cars),  4 credit cards with a combined balance of $10,600, and an education with a student loan balance of $20,000). 

Below I will show you a projection of how much you could earn if you invested the interest in the average American’s debt.  I will also show you how much the average American would have in 30 years if their payments were invested instead of being paid to the banks.

All calculations were made assuming an 8% return and, for ease of calculation, evenly distributing the interest over the course of the loan.

House

Mortgage            $240,000

Payment              $1,216

Interest paid       $197,776

Term                    30 Years

Interest Rate       4.5%

The value of the interest, in 30 years, would be $823,662

Car

Loan Amount     $30,700

Payment              $536

Interest paid       $1,505

Term                    5 Years

Interest Rate       1.9%

The value of the interest, in 30 years, would be $13,617

Student Loan

Loan Amount     $20,000

Payment              $212

Interest paid       $5,455

Term                    10 Years

Interest Rate       5%

The value of the interest, in 30 years, would be $20,624

Credit Card (Assuming a 2% minimum payment)

Loan Amount     $10,600

Payment              $212

Interest paid       $4,163

Term                    70 months

Interest Rate       11.99%

The value of the interest, in 30 years, would be $37,339

The value, after 30 years, of the interest alone would be $895,242!!! That’s just if you invested the interest you paid!  If you invested the monthly payments you make, you would have over $3,264,000!!!  Can you see the value in getting rid of your debt payments now?!?!?  Would your retirement be comfortable with over $3,000,000?  Would you ever have to worry about money again?  Would you be able to reach your financial dreams?  

When Andrea and I saw these numbers, it was a no brainer for us!  It was time to get out of debt!  I hope you make that decision too!  It’ll be well worth it!