A lifetime of debt? Really? Apparently so...

[Walt34]

I received a postcard-type advertisement for life insurance today that initially frosted me. Now, normally I don't even look at those things but this one for some reason caught my eye and was particularly insulting. As if I would leave DW saddled with a bunch of debt! It lists as "typical" debts of $8,343 in funeral expenses, $15,956 in credit card debt, and $12,596 in auto and other loans.

That got me to wondering - is that really the norm? Do so many people carry that much debt that they still have it when they get The Big Ache? So I started searching for a bit and came away a tad better informed and somewhat sadder. While the ones on the postcard seem typical they are a bit on the high side. and probably not the norm for people of retirement age This article is typical: A Lifetime of Debt: The Financial Journey of the Average American

According to this article the average American will spend $600,000 on interest payments over their lifetime. How sad.

It also reinforces the point about what a bunch of outliers this group is. Oh well, I guess I'll just go on my ignorant way and spend that $600k on things other than enriching bankers.

Just a sort of rant, but I kinda would like to think that people were smarter than that.

 

[Big_Hitter]

I'm not surprised

 

[Choices]

Oh, Darlin', we are the oddballs! Many folks just assume credit is how you buy everything. I have a friend who was talking to me about retirement planning and said "well, we'll always have a car payment", it was just a given. I wonder how many of our fellow citizens are still just one mortgage payment away from homelessness?

 

[Elbata]

Wow, $600,000! I haven't come close to making that in my life.

 

[Walt34]

Wow, $600,000! I haven't come close to making that in my life.

I haven't either so I wonder where that number came from.

 

[Rick_Head]

I haven't either so I wonder where that number came from.

I think you should check your arithmetic. $20K X 30 years is $600K.

In my case, my first j*b in 1967 paid ~$4K, in 1975 $9K, in 1980 30k and in 2000 100K. Even if my income stayed at 1980 level it was well over $600K by 2000, forgetting the part before 1980.

That said, the number seems really high. I probably made $1.8KK between 1967 and 2005. I was probably at least 75th percentile in income most of that time. I doubt I paid $50K in interest and it was 90% mortgage.

 

[Big_Hitter]

Wow, $600,000! I haven't come close to making that in my life.

remember these ppl are making mortgage pmts up until they die, so they are using SS, etc to pay that interest

like a previous poster said, 600K is 30k over 20 yrs or 20K over 30 yrs

 

[Ginny]

Imagine if they all put that $600k in their retirement funds! Oh, yeah, we did.

 

[cooch96]

If you bought your first house at the peak of the housing bubble, like me, then paying $600k in mortgage interest alone wouldn't be difficult. I know many, many who got nice new homes on very modest lots twenty miles outside of Seattle for well over $400k.

If you got a mortgage like that with a 30-yr ARM, I bet you'd pay over $2mm in interest. Plus, I don't believe most banks would let you refinance when underwater.

 

[gcgang]

Oh well, I guess I'll just go on my ignorant way and spend that $600k on things other than enriching bankers.
.

Not so much bankers as mortgage backed securities owners, like me, with 13% of BND. Tyvm.


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[scrabbler1]

I have paid just under $40k in interest and nearly all of it is from the mortgage on my co-op apartment I paid off in 9 years, ending in 1998. The tiny remainder is student loan interest from a small balance I paid off in 18 months back in the mid-1980s. I am not counting my small share (about $26k) of the mortgage interest paid by my co-op on its underlying mortgage.


My wage earnings in the 23 years I worked (16 full-time, 7 part-time) were just over $1M.

 

[Big_Hitter]

Imagine if they all put that $600k in their retirement funds! Oh, yeah, we did.

it's difficult (but I guess technically possible) to do that over one's career on a pre-tax basis with the 402g limit - it definitely takes discipline

 

[JustCurious]

It lists as "typical" debts of $8,343 in funeral expenses, $15,956 in credit card debt, and $12,596 in auto and other loans.
....
Just a sort of rant, but I kinda would like to think that people were smarter than that.

Those numbers do not surprise me at all, and no, most people are not smarter than that. Most people consider debt in all its forms to be a normal part of life.... mortgage payments, car payments, credit card payments, student loan payments. Anyone who lives a lifestyle that does not involve debt is an outlier in this society.

 

[GrayHare]

It lists as "typical" debts of $8,343 in funeral expenses, $15,956 in credit card debt, and $12,596 in auto and other loans.

Such debts do not mean a negative net worth. Even millionaires who pay their bill in full monthly are likely to die with credit card debt. That actually can be a smart thing since the card companies are quick to settle decedent debts for pennies on the dollar.

 

[timo2]

I don't think this is particularly a new phenomenon. I used to look through all the old land records When I was an oil and gas landman in North Dakota in 1980. Back around 1915, most of the farmers in western North Dakota took out a loan to buy property, then when the balloon note came due in a few years, they would get another loan to pay off the first loan, which would be due in a few years, and so on until they died or sold the land.

It was an eye opener for a 28 year old.

 

[W2R]

There's a certain appeal to borrowing to the hilt during highly inflationary times, like the 1970's. The money one borrows is paid off later in dollars that are worth less and less each year. I am reluctant to borrow at all, and right now inflation is not high enough to persuade me to borrow to the hilt.

Then again I do not NEED to borrow. Some of those who have borrowed so much are probably in extreme circumstances, with no job, the baby needs milk, and so on. I feel for them even though I would sure try to find another way out if I was in that situation.

 

[Capwest28]

My mother always said "I deserve this" and IIRC there was never a conversation about financial prudence, deferred gratification or paying cash for anything. Except you really could not pay cash since you were only able to make minimum CC payments.

In my late 40s I married a conservative man who taught me the error of my ways and delivered me from the financial pit I so eagerly dug for myself. If not for him I would not be reading this forum.


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[wmc1000]

while that seems a bit high - even if cc's are paid off each month but you average a $100,000 mortgage from ages 22 to 65 at a average interest rate of 5% you would have paid $215,000 in interest on that average debt over those years. I remember having a mortgage at an interest rates of 8% to 12% in early years.

 

[JustCurious]

In my late 40s I married a conservative man who taught me the error of my ways and delivered me from the financial pit I so eagerly dug for myself. If not for him I would not be reading this forum.

I'm just curious, did he marry you before he taught you the error of your ways?

 

[athena53]

In my case, I know that's high- I paid about $20K in mortgage interest annually for 7 years when I lived in NNJ. I've always had a mortgage but that was the peak. Our mortgage interest in 2014 was $3,300. I may have paid a total of $200 in credit card interest my entire life, thanks to the occasional accidental late payment, but that's it.


In 2014 the average credit card debt for those what had debt was $10,900. Assuming 15% interest, they're paying $1,600 per year.


The $600K seems high. You could get to it by having an average mortgage balance of $250K and an average interest rate of 8% over a 30-year period but in our neck of the woods a respectable starter house might be $160K.

 

[PhrugalPhan]

I visited a smart HS friend a few weeks ago and he indicated he was hoping to have his mortgage gone by the time he retired at 63. He's been a home owner since the mid 80s (30 years) and that will be another 11 years paying interest on his home (its his 2nd house) when he's finally done. He's in IT and I know he has had better pay than me for a long time (though that has reversed the past 5 years) and he seems to be thrifty. I was so surprised when I heard he still had a mortgage. With college loans for him and his wife, the cars, and the houses, its possible he will have paid $600,000 in interest when he finally retires. If he paid that much in interest, anybody could do it.

On my paid off home I probably paid about $50k, and maybe a few hundred on my education loans. I can't imagine being an indentured serf all my life. Just .... not .... happening.

 

[Amethyst]

Walt - I suspect this is your equivalent to the giant-underwear and elastic-waist "slacks" ads I receive, merely because I'm a woman aged 55+.

Everyone else thinks I should just laugh at the ads, but there's a serious side, too...if it's "normal" to carry lots of extra pounds at my age, what does that say about the general state of older women's health?

Amethyst

Ithis one ... was particularly insulting. .... lists as "typical" debts of $8,343 in funeral expenses, $15,956 in credit card debt, and $12,596 in auto and other loans.


.

 

[Walt34]

Walt - I suspect this is your equivalent to the giant-underwear and elastic-waist "slacks" ads I receive, merely because I'm a woman aged 55+.

I suppose. I just got my Medicare card a couple of weeks ago although it doesn't go into effect for a while yet and I've been inundated with ads for medical insurance.

It just seemed such a strange concept to be in debt for all of one's life. But my parents grew up in the 1930's and the emphasis with them was only borrow if you had to for a house or maybe a car but it was better to pay cash if you could. For a while there my father did run up some cc bills but that was not the norm and it only happened once.

Or as DW-to-be put it when we were dating: "The trouble with loans is they always want you to pay it back. Plus interest." The girl knew how to get my attention!

 

[Meadbh]

My parents paid cash for both their houses. They never financed anything and never had credit cards. I owe them a debt...of gratitude.

After my mother died, leaving me a trust fund and a substantial estate, her (surprised) lawyer said "where did she get all the money?"

I think we know the answer!

 

[ERD50]

I visited a smart HS friend a few weeks ago and he indicated he was hoping to have his mortgage gone by the time he retired at 63. ..... I was so surprised when I heard he still had a mortgage.
.....

I think you have a distorted view of this. I'm retired, I'll keep my mortgage as long as the rate is good (it's 2.875% right now). So what?

.... I can't imagine being an indentured serf all my life. Just .... not .... happening.

Hah, hah - I consider the bank an indentured servant, loaning me such low rate money for 30 years (OK, it is an adjustable, so they are not locked in for thirty years at that rate, but it's been low, low, and lower for the past ten that I've had it, and I don't see rates going up soon). And if rates do go up, I may just pay it off. I can pay it off at anytime, without penalty. The bank cannot call it from me though. How does that make me an 'indentured serf'? Why are you mad?

-ERD50