What is the True Cost of Debt?

Sometimes it's difficult to take stock of your financial situation and face your debt problem. If you're carry credit debt because you spend more than you currently have, you probably have a spending problem, and you're concerned about the effects the resulting debt is having on you and your family. But I'm here to tell you: you're probably not quite concerned enough. In fact, we’re making it our mission to let you in on the reality of credit card debt, and the impact debt is continuing to have on you and those you care about.

So why are so many looking to eliminate their credit card debt by leveraging debt negotiation? Let's try to put this in real-world terms. Say you have $50K in credit card debt. Unfortunately it's easy to get this deep into debt. The credit card companies are in fact depending on it, and they make it as easy as possible. Credit card debt is a trap, pure and simple. Think of it as a roach motel: very enticing and easy to enter, but impossible to get out of.
What are the enticements? Well, there are teasers, first. A credit card company may offer a very attractive 0% APR for the first six months, and before you know it half a year has gone by and suddenly you're paying 20% or even 25% instead of 0%.

The core of the problem, and an ingenious invention on the part of credit card companies, is the monthly payment concept. I'm not exaggerating when I say the monthly payment concept is specifically designed to benefit the credit card company and stick it to ordinary consumers. If you only paid the minimum monthly payment, month after month, it would take you years and years to crawl out of debt, literally.

This trap requires a drastic solution. Without this kind of solution, a 20 year debt trap is not out of the question. The sort of trap you get used to, you tolerate, you learn to live with, which is even more unfortunate, and which is precisely what the credit card companies want you to do.

To put it another way, that $1,000 couch you purchased on your credit card really cost you 5 times that much, or $5,000! That's the true price tag.

You can't win at the credit card debt game by doling out minimum monthly payments. It's like gambling in Las Vegas against the house. The house always wins.

And that true price tag? Believe it or not, it's even worse if you consider the opportunity cost. Instead of paying all that interest, you could have invested in a mutual fund. Say this mutual fund achieves a 10% return per year. At the end of 20 years, your investment would be worth $1 million dollars.