In an infographic put out by CreditLoan.com in 2009 illustrates that the average American will pay over $600,000 in interest during a lifetime. However, this doesn't mean that it has to be this way for everyone. Our family seeks to avoid debt if at all possible. In fact, there have only been a couple times when we've had to take debt on, and then we worked hard to be rid of it again as quickly as possible. This has allowed us in turn to save hundreds of thousands of dollars, what is almost the equivalent of a full-time job over the course of several decades.
Our Debt History
After observing the CreditLoan.com infographic, I was curious to see just how much we've paid on debt over the years. Therefore, I went digging and managed to find our old debt-related records. After totaling these amounts together, I came up with about $25,000 in interest that we've paid. This amount was split between our first mortgage, which came to about $23,150 in interest, and student loans, which came to about $1,700 in interest.
Where We Look to Avoid Debt
The reason we've been able to keep debt to a relative minimum compared to many is that we actively seek to avoid it. We have never once paid interest on a credit card. We paid off nearly $50,000 in student loan debt in about three years. We also made extra payments on our mortgage in an effort to pay it down as quickly as possible and then when we sold our home, we reinvested our remaining principal in a home that we could own outright. We've always purchased vehicles (typically pre-owned vehicles) outright, thereby avoiding payments and associated interest. And finally, we live below our means and with an emergency fund, giving ourselves wiggle room should unexpected bills come along and avoiding having to put them on the credit card or take out a loan to cover them.
Once Out of the Hole, it's Easier to Stay that Way
I can tell people first hand that being debt free is a great feeling. And being debt free makes us want to stay that way. Therefore, with our debt paid off, it's easier for us to stay that way. Without paying on interest-related debt, we have more money to put toward things like an emergency fund. With such a fund at hand, when emergencies expenses arise, we are able to pay them off without going into debt, therefore continuing the debt-free lifestyle.
If we can maintain our ability to remain debt free and continue to make larger purchases (vehicles, homes, etc.) outright, we are on track to great savings compared with the average American. In fact, at this point, we would cut off about $575,000 from that average interest amount quoted by CreditLoan.com. In essence, this is like cutting a $50,000 a year job (after taxes) out of my life for over 14 years or a $30,000 a year job (also after taxes) for almost 24 years.
To me, 14 to 24 fewer years of work -- or $575,000 extra dollars (depending upon my outlook) -- is well worth it for us to avoid future debt.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
CreditLoan.com. A Lifetime of Debt: The Financial Journey of the Average American. 2009. http://www.creditloan.com/infographics/a-lifetime-of-debt-the-financial-journey-of-the-average-american/. December 4, 2012.