How Much Interest Will You Pay in Your Life? You'll Be Appalled

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Back in August, the USDA released its annual report on the cost of raising a child. This year's big, scary number? $245,000.

Well, now we have an even bigger, scarier number: $279,000.

That, according to a new tool produced by, is how much you can expect to pay in interest on all the loans you take over the course of your life -- more than a quarter of a million dollars lost in the name of auto loans, credit cards and a mortgage.

That number is based on a host of assumptions. It assumes you'll take out a single 30-year mortgage on an average-priced home, with 20 percent down; that you'll own nine cars in your lifetime and take out auto loans for all of them; and that you'll carry a little over $2,000 in revolving credit card debt. With a fair credit score, the credit card balance will cost you over $13,000 in interest payments, the cars will cost you about $40,000, and the mortgage will run you in the neighborhood of $226,000 in interest.

Naturally, many of those assumptions may not apply to you.

No Car Yet, but a More Expensive House Is Likely

For instance, I live in New York, so I'm not buying a car anytime soon; my best guess is that I'll only wind up buying four new cars over my lifetime. I also studiously avoid carrying a balance on my credit cards, so at least for the moment I don't need to worry about those interest payments. Finally, my credit score is somewhere between good and excellent, so I'll be getting better rates on the loans I do take out.

On the other hand, if I buy a home in New York I'll likely be paying much more than the national average, and much more interest overall, especially if I'm not able to muster much in the way of a down payment.

Since everyone's financial situation is different, the site's "Lifetime Cost of Debt" tool allows you to adjust those assumptions to fit your own reality. If you fill in your credit score range and then adjust variables like the down payment on your home and your average credit card balance, the tool will spit out your own approximate lifetime interest cost. (For what it's worth, my own lifetime estimated cost of debt wound up being above the national average, underlining the outsized role a mortgage plays in the calculation.)

What About Student Loans?

The tool is slickly designed and fairly intuitive, though it does have one notable shortcoming: It doesn't account for student loans. With an average student loan debt load of more than $29,000, that's an extra $11,000 in interest payments to consider (assuming a 10-year repayment and a 6.8 percent interest rate).

Even with that omission, the tool does a great job of putting into perspective something that few Americans have perspective on.

"We tend to think of credit in terms of monthly payments, whether they're affordable," says's Gerri Detweiler. "But over a lifetime those costs add up. "

A Poor Score Will Cost You -- a Lot

It also provides some good perspective on the importance of your credit score. A slider lets you see how the lifetime cost of debt changes as you bounce between credit score ranges, and the difference is striking. At a fair credit score, a New Jersey resident will pay about $384,000 for her mortgage, credit card debt and auto loans. But adjust it upwards to "excellent," and the cost drops to $302,000. It's even more striking in the other direction: Move it down to "poor," and the lifetime cost of debt shoots up $486,000. Just going to from fair to poor costs you a cool hundred grand.

If anything, then, using the tool really drives home the importance of understanding how credit scores work. There are a lot of misconceptions about credit scoring out there, from the persistent myth that you need to carry a balance to establish credit to the notion that it takes a financial disaster like bankruptcy to hurt your score. These misunderstandings can cost you thousands.

Credit scoring is complicated, and it's not hard to miss a single payment or get tripped up by some obscure rule. Maybe if more people knew just how much money was on the line, they'd be a little more conscientious about it.

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How Much Interest Will You Pay in Your Life? You'll Be Appalled

The first step is to know how much you currently owe on each credit card, said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, the Washington, D.C.-based national nonprofit financial counseling organization.

If you don't know, you're doing personal finance wrong.

"Burying your head in the financial sand won't solve anything -- there are no answers down there," she said.

Reviewing your credit report and score in the past 12 months can point you toward any discrepancies or errors which you can dispute easily. Ensuring that your credit score is higher than 600 important and will enable you to receive lower interest rates when it comes to buying a car or house or obtaining other loans. Your creditworthiness is ranked from 300 to 850.

Another indicator that you are heading for trouble is if you find yourself near the maximum amount allowed on your lines of credit. If you're considering applying for new lines of credit because the existing ones are maxed out, you'll only make matters worse, NFCC's Cunningham said. "The last thing you need is more credit," she said. "Instead, probe to see why you are relying so strongly on credit cards to support your lifestyle."

It's important to minimize "percentage utilization" and maximize "credit available," said Kevin Gallegos, vice president of the Phoenix operations with Freedom Financial Network, a company which helps consumers with debt issues.

"If you have a credit card with a limit of $10,000, and you owe $3,500 on it, that's 35 percent utilization," he said. "Anything over 35 percent is considered is high, a warning sign that you may be living beyond your means and can impact credit scores."

Consumers who are current on their vehicle payment are a step ahead of their counterparts; if you're behind, you're on a rocky financial road.

If you are facing a money crunch, prioritize your bills, including making payments for your apartment or house and your monthly auto loan.

Another indicator that you are nearing serious financial issues is you have overdrawn on your checking account more than twice in the past 12 months. The overdraft fees are only adding to your dilemma. Instead, use free budgeting software or load an app from your bank that allows you to check your balance as often as you need to, even if it is daily. Some bills take longer to clear, so your current balance may not reflect that.

If you lack an emergency savings account, you could be headed for disaster if you run into car problems, lose your job or have a minor accident that prevents you from working. Only 51 percent of Americans have more emergency savings than credit card debt, according to a (RATE) report. The survey also found that 28 percent of people have more credit card debt than emergency savings, the highest percentage in the past four years while 17 percent have neither emergency savings nor credit card debt.

"Since the recession, people recognize how important emergency savings is," said Bankrate's McBride. "They have less appetite for credit card debt. Despite that recognition, people have had a difficult time making headway for savings in an environment where income is stagnant."

Receiving collection calls and notices is another sign that you aren't living within your means. Many creditors are willing to negotiate your payment amount or waive some fees temporarily so consumers who try to seek a remedy before their debt goes into collection are facing less damage to their credit score.

Consumer spending can easily wind up being bad debt, which is debt that is used for the consumption of goods with little to no long-term value or goods with diminishing value, said Jason Ayala, a private wealth adviser in Phoenix for Ameriprise (AMP), the financial services company.

"An example of bad debt is carrying credit card debt that was used to subsidize a standard of living that exceeds your income," he said. "If used appropriately, debt can be a very powerful and beneficial tool -- if not it can derail even the best laid financial plans."

Even if it was a one-time occurrence, applying for a credit card cash advance, payday loan, title loan or borrowing from your 401(k) or IRA in the past 12 months is a sign that you need to regain control of your finances.

"Adding new debt on top of old is a financial death trap," Cunningham said. "Balances grow, and you end up paying interest on the interest. Digging out of debt is impossible unless this practice stops."

If you are spending more than 28 percent of your gross salary paying rent or your mortgage that hampers your ability to maintain a moderate standard of living. Some lenders approved mortgages for homeowners to borrow up to 35 percent of their income during the past decade, but experts advise against spending that close to the threshold. Consider refinancing your mortgage, obtaining a roommate or at least cutting back on other bills or expenses. The 28 percent mark is a good rule of thumb, but it may vary depending on where and how you live, Gallegos said.

"Someone who lives in the heart of San Francisco or Manhattan and doesn't own a car may have a higher percent for the home category, but a lower allocation for transportation," he said.

Being able to maintain your current lifestyle without using your credit cards is a good sign. In July, total consumer revolving debt, which includes credit card debt, rose by 7.4 percent from June.

"This is a time when consumers can and should be saving more of their personal income compared to driving up debt," Gallegos said.

Consumers should aim to save 10 percent of their income.

Living within your means on a daily basis and using credit cards only in real emergencies is the best option.

"Paying down credit card debt is one of the best investments you could ever make since the effective rate of return easily can approach 20 percent," he said. "In addition, having no credit card debt is in itself a financial cushion. It will require strict discipline, belt-tightening and a revision of your goals."

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