If you do not have a definitive answer to this question, you might be living on the edge of financial suicide yourself. On the surface, you may view this as an extreme question; however, you will see from some of the numbers below that the question may be more appropriate than you think. The truth is many Americans are killing their opportunity to accumulate wealth without realizing it. I call it the bad word … INTEREST! That’s right. In my opinion, we are giving away our potential to accumulate wealth with purchases we buy using consumer credit which mandates our payment of consumer interest.
According to Investopedia, consumer interest is a type of interest that is charged for personal loans, including automobile loans, credit card debt, payday loans, and any other loan used to purchase consumer goods (i.e., furniture, clothes, TVs, etc). This type of interest includes all forms of nondeductible interest that consumers must pay for the use of credit. It excludes tax-deductible interest such as mortgage interest paid on your house or real estate investments.
Interesting enough prior to the Tax Reform Act of 1986, most types of interest were considered deductible. After the reform took effect in 1991, it disallowed many forms of interest, including consumer interest, from being a tax deduction. Individuals who had consumer credit before 1991 probably remember being able to deduct this interest on their tax returns. Unfortunately, today only interest on loans like mortgages, business investments, or education is deductible.
Although education costs are skyrocketing and taking college graduates years to pay off, it is much wiser to take out a student loan versus taking a personal loan to pay tuition. It is much easier to prove to the IRS that a student loan was used for education, therefore allowing the loan to be deductible.
But before we go any further, let’s talk about purchases made on credit. According credit.com, the average American can look forward to paying over a quarter of a million dollars in interest on loans taken over a lifetime for cars, credit cards, and mortgages. It is based upon the assumption that you took out a single 30-year mortgage on an average-priced home, with 20 percent down; that you’ll owned nine cars in your lifetime and took out auto loans for all of them; and that you’ll carried 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. The numbers add up to a huge amount of our lifetime earnings.
Oh, I don’t want to forget to mention that if you have a poor credit score your cost for borrowed money skyrockets. According to Dailyfinance.com, at a “fair” credit score, a New Jersey resident will pay about $384,000 in interest for their 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 to $486,000. Just going from fair to poor costs you a gigantic hundred thousand dollars.
To help you make the decision to accelerate your loan and credit card payoffs, calculate the total amount of interest you will pay by going to content.credit.com
For more information about Mastering Money with Helen Crawley-Austin or to purchase 30 Days to Better Financial Awareness, visit my website at helencrawleyaustin.com
Sources:
http://www.investopedia.com/terms/c/consumer-interest.asp
http://www.wisegeek.com/what-is-consumer-interest.htm
http://www.dailyfinance.com/on/how-much-interest-will-you-pay-in-your-life
![](/wp-content/uploads/2020/09/subscribe-banner-box-bg-fall-mob.jpg")
