Get Out of Debt Now or Pay $600,000 in Interest Payments

So how much did you pay last year in interest on your credit accounts last year? The average American will end up paying about $600,000 in interest payments over his or her lifetime. That's right, more than half a million bucks. Now just imagine what these folks could have done with that six-hundred grand. How would that amount of money changed their lifestyle or the living standard of their families? It's something to consider the next time you apply for a credit card or get some other type of loan.

Savings Before Credit Cards

Does anyone remember saving money? You know, before the 1960's, there weren't really any credit cards. When a person saw something they wanted in a store, that person would begin to set aside a little bit of their earnings each week until they had actually saved enough money to but the wanted item.

Some stores would even help the potential buyer out and offer what is called a lay-away plan. A customer selects an item and the store sets it aside so no one else can buy it. Each week, the customer would go into the store and pay a little money to the store for the item set aside. When the customer made all the payments, he could pick up the item and take it home. It's a process that seems so foreign to the average person today who may have 12 or more credit card accounts.

Life Before the Credit Crunch

Remember a few years ago when you would get two or three credit card offers in the mail every week? It seemed that everyone was ready to extend credit to just about anybody. One person actually filled out a credit card application for his own dog, using his own name as a cosigner. The credit card arrived in the mail just a few weeks later. Credit was easy to get, and credit scores weren't really a big worry.

But even back then in the heyday of "credit for all and all for credit" the cost of credit was still an issue. With credit card interest rates, late fees, and other miscellaneous charges, the credit card companies were collecting a lot of money. Interest rates eventually went higher and higher, fees became unimaginably high, and yet people continued to spend money they really didn't have or could not repay.

Because a large number of those same companies who begged to give you a credit card are now running away from the credit game, many folks are just now coming to a realization of how much that credit card actually cost. Any credit can cost a great deal over a lifetime. Bad credit can cost a fortune.

A Story of Two Credit Scores

Liz Pulliam Weston in an online article for MSN's Money Central gives a good example of just how bad credit will alter your lifestyle. She compares two people who have borrow about the same amount of money over a lifetime but handle that money differently. Both people in her example get about $20,000 in student loans, carry an $8,000 balance on their credit cards in college, buy a new car after graduation (and every seven years throughout their lifetimes), get a $300,000 mortgage on their homes, buy a bigger $400,000 house at age 40, and take out a home improvement loan to remodel the second home.

Now here's the difference - One person pays bills on time, applies for credit sparingly, doesn't max out credit cards, and has an excellent credit score of 750. Lenders are now more willing to increase credit limits on these accounts and offer even more credit which allows for existing credit balances to be spread out over several credit accounts. This keeps the credit score higher.

The other person pays bills late, a fair-to-poor credit score of 650. This person doesn't pay bills on time, misses a few payments, and sometimes pushes credit cards to the maximum spending limit. Lenders are reluctant to extend more credit so few offers for more credit are available. This person carries larger balances on fewer cards which negatively impacts credit scores. Because of the lower credit scores, interest rates increase on just a few credit cards. Options to spread balances over more credit cards are not available to this person.

The lesson has been learned the hard way for many folks who were caught in the most recent credit crunch. Folks need to learn to start weaning themselves off of the credit card way of life and start getting back to saving money, or just getting by with less. It's time to take action and make a plan to become financially free. Less credit now will mean more money later. Learning to live within one's means is sometimes no easy task, but it can be done.  No one wants to be penalized to the tune of $600,000 for credit over a lifetime.

Click on the link below for additional information and be sure to get my free report on saving money this year.