From Mark Ford, founder, Palm Beach Research Group: I had my first serious run-in with debt when I was 30 years old.

My wife, K, and I were renting a condominium in Washington, D.C. Our landlady came to us with an exciting opportunity: We could buy the condo for $60,000 with no money down. For just $100 per month more than what we were already paying for rent, we would be paying a mortgage. It sounded like a great deal, so we took it.

What we bought was a negatively amortizing mortgage with a three-year term and an 11% interest rate. What that meant was, every three years, we were paying $19,800 in debt services and another $3,000 in closing costs.

These costs weren’t obvious to me at the time. We didn’t realize what was going on because our monthly payments were only $550. I was too foolish then to ever ask myself, “What is the cost of this debt?”

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Eventually, when I finally realized what was happening, I tried to find another bank to take me out of this scam. But none would. The mortgage we had signed was not backed by the government (Freddie Mac/Fannie Mae). Without government backing, banks didn’t want to give me a mortgage. It was too risky. We were stuck. No other bank would touch it.

I thought owning our own place would help us amass more money for our golden years. But instead of making us richer, our golden condo was nothing but fool’s gold. And we were the fools.

I learned a great deal about debt from that experience. I learned that when banks make it easy to borrow money, it’s not because you are a nice, deserving person. I learned that if you can get a loan, even when your credit is poor (as ours was at the time), there is usually a scam involved. But most important of all, I learned a lesson that has saved me millions of dollars in the years since: Debt is dangerous when you don’t understand it.

Please recognize the distinction in that last sentence. I’m not saying debt is inherently bad or dangerous. What is dangerous is not understanding the costs, terms, and risks of debt. In other words, our own ignorance of debt is what often proves disastrous.

Sometimes debt is good (I cover that elsewhere). But debt can be good only after you thoroughly understand it. And most people don’t.

The Hidden Cost of Debt

At some rudimentary level, we all understand that spending money we don’t have makes us poorer. But in our daily lives, many of us go into debt with little thinking. We view it as a necessity. We buy homes with it. And cars. And boats. And toys. Even vacations.

As I write this, the average total consumer debt stands at $51,651 per person (according to the Federal Reserve). Average credit card debt stands at $15,191 per person (according to NerdWallet).

What’s scary is not the principal amount due on these debts—but the unseen total cost (including interest) that must be paid back. It’s much more than most people realize.

Let me give you two examples.

Let’s say that, like most Americans, you are in the habit of buying things with credit cards. After a while, you notice that you have accumulated $20,000 in total debt. You decide to cut up your cards and repay your debt. You can devote $480 per month to paying it back. How long will it take and how much will it cost you?

It will take you nearly 5 years to pay off the credit card debt at 14.99% interest. And your total payments will be $28,419. Of that, $8,419 will have been in interest payments. That’s almost 50% more than what you originally “spent.”

Or let’s take a $250,000 home on which you take a $220,000 loan with a 5% interest rate over 30 years. The mortgage payments are $1,181 per month (not including property taxes and insurance).

But how much will that house really cost you, including interest payments? You will end up paying $425,166 for that house. Over half of that—$204,166—will have been to interest payments alone. That’s a big, wealth-draining cost.

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Your Next Steps

Ask yourself two questions before you buy anything or take on debt:

  • “How much does it cost?”

Right now, I want you to go get a copy of all of your debt statements. Grab a copy of your mortgage, auto loans, credit card statements and agreements, and any statements dealing with personal loans, business loans, or student loans.

Now, look over those statements and identify the terms of your loans. How much are your payments? Over how many months? What interest rate are you paying?

Next, I want you to learn how much interest you will pay over the life of each loan. Plug your loan information into a mortgage or loan calculator here. You will understand the true cost of your debts when you do this.

If you are having trouble understanding anything in the documents, review them with a friend, family member, CPA, or attorney who does. It’s important that you know what you have signed up for.

  • “Can I afford it?”

This question is a bit harder to answer. How much you can afford depends on several factors, which we cover in depth in Debt & Credit Solutions.

If you are troubled by a large amount of debt you don’t understand, know this: You can learn just as I did. Decide to banish your ignorance regarding debt.

With an understanding of your debt, you can then begin the hard work of digging yourself out. But only after you do the work necessary to understand what your debt is costing you. If you don’t understand your debt, you’ll be forever stuck in a hole you can’t climb out of. Don’t let that be you.

Do the action steps outlined above right now. You’ll finally understand the costs of your debt. And then you’ll be ready to take decisive action to get out of it.

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